Rates on hold for another month

October 07, 2014
Jay Stewart

For the 14th consecutive month, the Reserve Bank of Australia has chosen to err on the side of caution and leave the cash rate untouched.


At its Board meeting earlier today, the Reserve Bank said it was prudent to continue to take a “wait and see” approach towards rates, leaving the official cash rate on hold at 2.5 per cent.


The decision was largely expected as just last week the Reserve Bank said it had no plans to change its current stance on monetary policy and instead suggested it would try and ease the ‘hot’ property market using other measures – such as higher assessment rates.


Speaking to a Senate committee last week, the Reserve Bank made it clear it was concerned about Australia’s property prices and their rapid growth over the last 12 to 24 months.


According to recent research conducted by RP Data, property prices in Sydney and Melbourne continue to climb higher month on month, with the two capital cities recording significant growth over the last 12 to 24 months.


Sydney dwelling values, for example, have grown substantially over the last two years, with prices up 16.2 per cent over the last 12 months alone.


Of course this growth in dwelling values, while impressive, follows several years of low to moderate growth. In fact, data shows that over the 15 years to January 2014, Sydney home values have increased at a compounding annual rate of 6.4 per cent.


As a result, it is clear to see that while Sydney is currently enjoying phenomenal growth in dwelling values, this hasn't always been the case.


Nor is it the case for every other capital city. According to RP Data, Sydney and Melbourne are the only two states to have recorded double digit growth over the last 12 months. 


Property values in Hobart have increased by 2.8 per cent, while in Canberra, property prices are up just 1.4 per cent over the 12 months to September.


With this in mind, it is not practical for the Reserve Bank to lift the official cash rate just yet as this may ultimately have a negative impact on the housing market as a whole, which could, in turn, have a negative flow-on effect to other industries and negatively impact the unemployment rate.


With this in mind, it is reasonable to assume that the Reserve bank could leave the official cash rate on hold for some time yet. As such, now is a great time for those with a mortgage to review their home loan and make sure they are still in the most suitable product for their needs.


Similarly, if you would like to get onto the property ladder, now is a good time to do so.


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Posted in: Interest rates

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