In response to the RBA’s decision to keep interest rates on hold, Tim Lawless, CoreLogic’s Head of Research, provides his expert commentary on the decision and what may lay ahead when they meet in February.
Despite inflation tracking well below the target range of 2-3%, the RBA decided to keep the cash rate on hold at 1.5% today.
“On one hand the RBA was likely considering the sluggish inflation numbers, the likelihood of a low or even negative economic growth reading when GDP data is released tomorrow, record low wage growth of 1.9% in the year to September and the loss of approximately 50,000 full time jobs in the year to October,” suggested Tim.
“In balance, there are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates,” he continued.
“The reacceleration in housing values in some cities was likely a topic of discussion at the RBA, particularly considering the rebound in dwelling values that has been evident across some cities coincided with the two rate cuts earlier this year.
The May and August rate cuts were also accompanied by an aggressive rise in investment activity. A decision to cut the cash rate to new record lows could add further incentive to investors and owner occupiers which could push housing values even higher.
The next RBA meeting isn’t until February 7th, 2017. By this time the RBA will have had time to consider the performance of the housing market over the final quarter of 2016, as well as GDP figures for September and inflation numbers for the December quarter.
There will also be further clarity on the US economy where unemployment has reached a nine year low and interest rates are about to start ratcheting higher. At 1.5%, the cash rate is still highly expansionary and, together with other factors, is likely to keep housing demand strong”, he concluded.