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RBA chalks up two years on hold

The Reserve Bank of Australia (RBA) has today made the decision to keep the nation’s official cash rate on hold at 1.50%, marking two years at this record low rate.

A number of factors are contributing to the RBA board’s decision to hold the official cash rate for such a sustained period.

The RBA recently raised concerns over the implications that a significant change to interest rates would have on households’ disposable incomes.

It will not have escaped the Board’s notice that dwelling values across the nation have shown a consistent decline over the last three months. Indeed, the latest data from CoreLogic suggests the decline in dwelling values may be gaining momentum, driven by long-term falls in Perth and Darwin, as well as the two largest housing markets, Sydney and Melbourne.

Further, the latest Consumer Price Index for the June quarter came in under market expectations and below the RBA’s target range and is expected for some time to come.

Economists suggest a mix of other factors contribute to the Board’s decision each month, such as data on consumer and business sentiment and business conditions across industries.

The most recent Quarterly Business Survey from the National Australia Bank found that favourable business conditions continue and point to business investment growth.

Consumer sentiment has a significant impact on the economy and while the latest Westpac Consumer Sentiment survey reported the most positive reading since November 2013, the overall level of sentiment is below the long-term average as households continue to feel pressure from sluggish wages, rising electricity and petrol prices and declining dwelling values.

The cash rate is likely to remain static for the foreseeable future, however lending standards are expected to tighten further, which could make it harder to secure a home loan.

If you’re looking to buy your first home or investment property, now is a great time to take advantage of softening property prices and historically low mortgage rates.

Speak to your local mortgage broker who can help guide you through the home buying process.

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