The Reserve Bank of Australia (RBA) has announced they will leave the cash rate unchanged at 1.5 percent after its monthly meeting yesterday.
RBA Governor Philip Lowe said the broad-based pick-up in the global economy is continuing, but while he had an optimistic tone on strength of the labour market, he said wage growth remains low and this was likely to continue for a while yet.
In what is becoming a familiar trend, the decision came as no surprise given that that RBA’s cash rate has been at a record low 1.5 per cent since August. The housing industry also awaits the impact that changes to stamp duty to the first home buyer in NSW will have.
The next RBA meeting will be held on July 4.
In the meantime, here’s what industry’s identities have said about RBA’s decision to hold rates:
CoreLogic’s Tim Lawless said:
“While the cash rate has remained on hold in June, financial markets are starting to lean more towards a cut in official interest rates rather than a stable rate setting. Importantly, one of the key barriers to rate cuts – the hot housing markets of Sydney and Melbourne – have shown signs of slowing. CoreLogic has reported only one month of negative dwelling value movements, albeit during the seasonally weak month of May. However, if this recent slowing develops into a more sustained trend, the RBA may be able to consider alternative scenarios to a steady cash rate.
The last time rates were cut, which was May and August of 2016, the housing market reignited with capital gains accelerating and investors surging back into the market. The situation is very different now, with new macro-prudential regulations dampening investment demand while mortgage rates have stepped higher, particularly for investors and interest-only borrowers. The housing market will be the subject of much scrutiny over coming months, particularly the Sydney and Melbourne markets where CoreLogic figures show dwelling values have risen by approximately 75% and 55% respectively over the past five years. A longer trend of slowing value growth and overall softer housing conditions will lend further support to the notion that house price growth has moved through its cyclical peak and may take some pressure away from the RBA to keep rates steady especially given that other sectors of the economy other than housing seeming need interest rates set at a lower level to what they currently are.”
Housing Industry Association Senior Economist Shane Garrett:
Predicting that there will be no further reduction in the Official Cash Rate in 2017, Shane Garrett said, “Today’s Statement, following the decision to keep the OCR steady at 1.50 per cent in June, signals that economic conditions would need to change markedly from where they currently sit if there were to be a change in the Cash Rate.
“Comments issued by the Reserve Bank Governor today confirmed that the indicators in the housing market vary considerably around the country. This is demonstrated in recent housing price indicators and building activity that show some regions remain strong while others have cooled.
“The Reserve Bank Governor also noted that lenders have recently increased mortgage rates for investors. While this has eased the pressure on the RBA to increase the cash rate, investors should not face rising lending costs while the cash rate remains unchanged.
“Furthermore, the latest dwelling price figures show that some deceleration is underway in the market for established properties on the east coast capital cities. “With the exchange rate stable, muted inflationary pressures and mixed demand conditions it is unlikely the Cash Rate will change in 2017.”
REINSW President John Cunningham commended the RBA’s “sensible approach”:
“With interest rates at record lows, it is likely that the next movement will be up.”
“The main question now being asked is when will this occur and in an environment where banks are raising interest rates independently it is important for all those looking at entering the marketplace to be sure of their financial situation.
“This is especially true for first homebuyers who may find themselves in a position to purchase property following changes to stamp duty from the 1 July 2017 announced by the NSW Government last week.
“Future interest rate rises should be factored into the ability to service a loan.”
Leanne Pilkington, Laing+Simmons Managing Director:
“The latest data suggests subdued house price easing is occurring in major markets, there are conflicting opinions on the near-term growth prospects of the economy, the crackdown on interest-only loans seems to have caused investors to back off, and the threat of the major banks adjusting rates to counter the bank levy cannot be entirely discounted.”
“A steady cash rate is the constant among this broader uncertainty.
“This past financial year has been a turning point of sorts. The unsustainable growth in house prices has come to a natural end, without the sharp downturn many predicted.
“We see a more subdued price growth environment in the short term though the recent changes to stamp duty for first home buyers may have an impact on the prices some people are willing to pay.”
REA Group Chief Economist Nerida Conisbee:
“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 May we continued to see many 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.”