RBA to keep a close eye on global economy

July 22, 2015
Robert Harney

Strong property price growth in Sydney and Melbourne combined with growing problems abroad has encouraged the Reserve Bank of Australia to leave the cash rate on hold.

At today’s Board meeting, the RBA decided to err on the side of caution, leaving the cash rate on hold at 2% for the second consecutive month.

“Recent research conducted by RP Data shows property values continue to climb in both Sydney and Melbourne,” he/she said.

“Prices rose by 2.8% in Sydney and 2.9% in Melbourne in June alone. What makes this growth even more impressive is that it comes at a time when many of Australia’s lenders have started to tighten their investment lending policies.

“If rates were cut, property prices could climb even further – a fact the Reserve Bank is acutely aware of. As such, it makes sense for them to leave rates on hold and hope that the changes being made by the banks to investment lending policies will be enough to help slow investor demand and, in turn, property price growth in both Sydney and Melbourne.”

Also the turmoil in Greece would have further encouraged the Reserve Bank to leave their powder dry today.

“Following Greece’s ‘no’ vote at its recent referendum, the Australian dollar has plummeted, hitting its lowest level since 2009,” he/she said.

“With this in mind, there is no immediate reason for the Reserve Bank to cut rates.”

But while the Reserve Bank of Australia decided that no rate change was the best course of action for now, Mr/Ms Last Name said future rate cuts cannot be ruled out.

“The Reserve Bank is likely to take a ‘wait and see’ approach to rates. They will continue to closely monitor the problems in Greece, as well the local economy, consumer sentiment and property price growth in Sydney and Melbourne,” he/she said.

“If any of these areas give them cause for concern, they will not hesitate to pull the rate lever. They have done it before and there is nothing to stop them from doing it again this year.”

Posted in: Interest rates

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