RBA keeps cash rate at same level

RBA keeps cash rate at same level

Posted on Tuesday, July 07 2015 at 2:38 PM

Just as predicted by the 33 experts and economists surveyed by finder.com.au, the Reserve Bank of Australia (RBA) announced this afternoon that the cash rate will be staying at two per cent for at least another month.

Governor Glenn Stevens said
in his announcement: “The Board today judged that leaving the cash rate unchanged was
appropriate. Information on economic and financial conditions to be received
over the period ahead will inform the Board’s assessment of the outlook and
hence whether the current stance of policy will most effectively foster
sustainable growth and inflation consistent with the target.”

Domain senior economist
Andrew Wilson was unsurprised by the announcement. He said: “House price growth, particularly in Sydney
and Melbourne, will continue to be fuelled by the lowest mortgage rates since
the mid-1960s. Low bank deposit rates will also continue to activate investment
in residential property chasing both higher yields and capital gains.” 

According to the
finder.com.au survey, many of the experts surveyed cited reasons for a rate pause including the RBA continuing to maintain a
‘wait and see’ approach as the recent rate cut in May has had little impact as
yet on the economy.

The improved unemployment
rate, higher housing costs as well as financial pressures from overseas were said
to be other factors associated with the decision.

However, almost two out of
five of the experts surveyed (38 percent or 12 experts) are expecting the cash
rate to fall by the end of the year, which could be as early as next month. Of
the 12 who expect the cash rate will fall this year, five are expecting a drop
in August or September while the remaining seven are expecting to see the cash
rate fall in the last quarter of 2015.

Two experts are forecasting
the cash rate will rise this year – Peter Boehm from onthehouse.com.au and Mark
Crosby of the Melbourne Business School.

Griffith University’s Mark Brimble said before the decision: “The Reserve Bank is between a rock
and a hard place on this now, with a weak economy and property prices starting
to bubble in some areas. Ideally, it needs the currency to do the work for it,
but this is remaining stubbornly strong. 

“This continued uncertainty in Europe and Asia and expectations of a
rate rise in the US later this calendar year, the Reserve Bank is likely to sit
on its hands. Regarding house prices, the property market will continue to
behave unevenly across the country. Some areas will continue to rise, while
others will fall dramatically as employment (and thus demand) shifts.” 

Michelle Hutchison, money
expert at finder.com.au, says
first homebuyers will see greater pressure to enter the market if interest
rates fall further this year.

“The latest global economic
uncertainty has thrown a spanner in the works for our local economy, as the
Reserve Bank could now look to minimise the impact by reducing the cash rate
this year.

“This could lead to further
pressure on the housing market, as lower interest rates could fuel further
demand for investors and refinancers, leaving first homebuyers behind.”

 

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