Cash Rate on Hold
In a move that is unlikely to come as a surprise, the Reserve Bank of Australia (RBA) has left the official cash rate on hold at 1.5% after today’s board meeting. After reducing the cash rate by 0.25% at its August meeting, it had been widely predicted that the central bank would not make back-to-back monthly cuts. All 38 economists and experts surveyed in the latest monthly finder.com.au RBA Survey predicted the cash rate to stay put. CoreLogic research head Tim Lawless believes current conditions in the Australian property market likely backed the RBA into a corner today. “The RBA is likely to be keeping a keen eye on the housing market; since the May rate cut and subsequent cut in August, many of the key housing market indicators have bounced higher. Auction clearance rates have returned to the highest reading in more than a year, albeit on lower volumes,” Lawless said. “CoreLogic’s hedonic index has seen some acceleration in the rate of capital gain across the already hot Sydney and Melbourne markets and the value of investor housing finance commitments have recently rebounded to the highest levels since August last year,” he said. While the state of the housing market may have been a key part of today’s decision, Lawless said the prospect of the RBA lowering the cash rate even further is still on the cards. “With monthly indicators of inflation remaining low and the Australian dollar remaining relatively high, there remains a strong chance of another rate cut later this year,” he said. “The most likely timing will be the November RBA meeting when September quarter inflation data is available. Another low inflation reading combined with a stubbornly high dollar could result in the cash rate moving lower.” Not all agree that is the case though, with Peter Arnold, data insights director at mortgage comparison portal RateCity.com.au, believing the cash rate will remain at 1.5% until 2017 at least. “In theory, a rate cut gives consumers some more spending money which helps to kick along the economy. But the banks withheld almost half of the last cut, so the [RBA] Board is unlikely to pull the trigger again this year,” Arnold said. “On top of that, APRA and the banks are happy with the caps put on investor lending, which gives the RBA further breathing room,” he said.