In his statement, RBA governor Dr Philip Lowe expressed a degree of concern about the impact a stronger Australian dollar is having on economic activity. The Australian dollar exchange rate remains at above 80 US cents.
“The higher exchange rate is expected to contribute to subdued price pressures [inflation] in the economy,” Dr Lowe said.
He also commented on the housing market, which Dr Lowe said varies considerably around the country.
“Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining.
“In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.”
It was widely speculated the RBA would keep rates on hold at its August meeting. The RBA will next meet on September 5. Here’s what the industry had to say about the decision:
John Cunningham, President REINSW:
“While the RBA has not acted over the last year, there has been considerable activity from the banks.
“The Sydney property market has settled down after a whirlwind period of growth but solid competition remains and will continue into the normally strong spring market.
“Buyers must prepare themselves for several interest rate rises in the future, but the outlook remains positive.”
Leanne Pilkington, Managing Director Laing + Simmons:
“The RBA has indicated its intention to cautiously manage inflation to the preferred two to three per cent range while at the same time appears reticent to reduce rates further. The weak inflation forecast in the June CPI figures point to a steady rate scenario for the short term.
“With employment levels also steady, this is good news for the property market on the whole.
“After several years of strong price growth, we’re at a steadier stage in the cycle, having thus far avoided the sharp correction many predicted. With prices buoyant and clearance rates still encouraging, there is cause for optimism for the housing market as we navigate the traditionally slower winter months.
“In NSW, the impacts of the recent changes to stamp duty for first-home buyers will be interesting to monitor, particularly when the spring selling season kicks off.”
Shane Garrett, Senior Economist, Housing Industry Association:
“The outcome of today’s RBA meeting means that the Official Cash Rate has now been held steady for 12 consecutive months.
“The decision to hold rates steady was made in the context of fairly restrained price inflation across the economy and challenging demand conditions. Residential building activity is now starting to contract, having been a driver of growth up until recently. New dwelling commencements peaked in the March 2016 quarter and remain relatively high. Australia’s economy will continue to require low-interest rates in order to achieve stronger growth over the medium term.
“In terms of keeping inflation at bay, the Australian economy has performed an exceptional feat over the past number of years. Our exchange rate has dipped sharply and dwelling prices have escalated in key markets – but without fuelling detrimental wage or price pressures across the economy.”
Sally Tindall, Money Editor RateCity.com.au:
“The latest economic figures show our economy is in neutral. Inflation has dropped to 1.9 per cent, just below the RBA’s target range of two to three per cent, and unemployment remains steady at 5.6 per cent.
“The RBA will be concerned about the Australian dollar rising to US80c, but not worried enough to justify a rate cut. There has been a lot of commentary in recent weeks surrounding the RBA’s new ‘neutral’ cash rate of 3.50 per cent. Although we should all keep this in the back of our minds, the economy must strengthen significantly before we start to see interest rates climb again.
“That said, I expect the cash rate to eventually drift up – the key word being ‘eventually’.
“When the RBA calculated that Australia’s neutral cash rate is two percentage points higher than the current setting, it highlighted just how abnormal our current position is.
“Sooner or later, the RBA will aim to lift the cash rate closer towards historical levels, so it has room to move in the event of an economic crisis.”
Angus Raine, Executive Chairman, Raine & Horne:
“The RBA doesn’t consider the Australian economy to be strong enough to justify tightening the cash rate. That said, with the Australian dollar nudging $US0.80, there are plenty of international investors who appear to like the cut of Australia’s economic jib.
“And why not, with inflation at 1.9 per cent, which is below the RBA’s target range of two to three per cent. Add our steady unemployment at 5.6 per cent and Australia’s comparative political stability, and we look pretty good when judged against many other global economies.”
The RBA will monitor the higher Australian dollar, but its trajectory won’t be enough to force a cut any time soon, noted Dawn Inanli, General Manager, Raine & Horne Financial Services.
“The clampdown by lenders on interest-only loans continues to be a more significant threat to owners with mortgages.
“While this crackdown will have a negligible impact on the wider real estate market, older owner-occupiers with interest-only mortgages might be squeezed financially if the lenders start forcing them to make principal and interest repayments,” said Ms Inanli.
