RBA leaves cash rate unchanged at 1.5 percent

The Reserve Bank of Australia (RBA) has announced they will leave the cash rate on hold at 1.5 percent after its monthly meeting yesterday.

RBA Governor Philip Lowe said that there has been a broad-based pick up in the global economy since last year.

“The Bank’s forecasts for the Australian economy are little changed. Growth is expected to increase gradually over the next couple of years to a little above 3 per cent. The economy is continuing its transition following the end of the mining investment boom, with the drag from the decline in mining investment coming to an end and exports of resources picking up. Growth in consumption is expected to remain moderate and broadly in line with incomes. Non-mining investment remains low as a share of GDP and a stronger pick-up would be welcome.

“Indicators of the labour market remain mixed. The unemployment rate has moved a little higher over recent months, but employment growth has been a little stronger. The various forward-looking indicators still point to continued growth in employment over the period ahead. The unemployment rate is expected to decline gradually over time. Wage growth remains slow and this is likely to remain the case for a while yet.

The next RBA meeting will be held on June 6.

In the meantime, here’s what the real estate industry’s leading identities have said about RBA’s decision to hold rates:

Real Estate Industry of New South Wales Deputy President Leanne Pilkington

“The decision by the big four banks to lift interest rates independently of the Reserve Bank has left the board with little choice but to keep interest rates steady. We expect that the rises in interest rates will filter through to the property market in the coming months and this is why the RBA is taking a wait and see attitude.”

REA Group Chief Economist Nerida Consibee

“It’s not surprising that the RBA held rates today.

“While there was a marked reversal in the GDP figures in the December quarter and inflation edged slightly higher in March, the RBA is continuing with a wait and see approach.

“While the RBA has kept rates on hold, this is no guarantee that banks will not continue to increase rates as their wholesale costs increase and further pressure is applied by the Australian Prudential Regulatory Authority.

“In April we continued to see many banks continue to raise rates and this is likely to be a key trend for the remainder of 2017. For home owners, it is now more important to watch the movement of banks, rather than the RBA.

HIA Economist, Geordan Murray

“Comments issued by the Reserve Bank Governor today provide little indication of any material change to the RBA’s assessment of economic conditions – as such, the official interest rate appears set to remain unchanged for some time yet

“The pressures on the RBA to respond to developments in the housing market have eased as the major mortgage lenders moved to increase interest rates on a number of riskier mortgage lending products. Furthermore, the latest dwelling price figures showing that the market for established properties in the east coast capital cities may be cooling is likely to provide additional comfort.

“Following on from recent actions by APRA, the RBA will be keeping a watching eye on developments within the housing market as the banks respond to the regulator’s guidance.

“The housing cycle is passed its peak. Whether it be APRA’s guidance on lending standards, reform of planning policies, state or commonwealth taxation and expenditure measures, or monetary policy, our policy makers must proceed with care.”

CoreLogic head of research Tim Lawless

“As widely expected, the RBA kept the cash rate on hold today at the record low setting of 1.5%.  While a broad range of economic factors would have been discussed at the meeting, the housing market would have been front and centre in the conversation.  Capital city dwelling values have increased by almost 10% since the latest round of rate cuts in May and August last year, led by gains of around 13% in Sydney and Melbourne.  Since the latest round of rate cuts, inflation has edged higher, with headline inflation moving back into the RBA’s target range of 2% to 3% for the first time since the September 2014 quarter. However, inflation increases were driven largely by forces that are exogenous to domestic demand, including a 6% increase in the price of fuel, and a 2.5% administered increase in electricity prices. Coupled with continued low wage growth, this indicates that private and household demand may still be weak despite the higher inflation figures, warranting the maintenance of a low cash rate.”


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