Economic stability the mantra as RBA keeps rates unchanged

03 September 2020

Despite the current turbulent times the Reserve Bank has kept the official cash rate at 0.25 per cent for another month.

It’s a general sign of confidence from the RBA and it should help the struggling property market as the spring selling season approaches.

Diaswati Mardiasmo is an economist at property group PRD and told Domain the central bank’s decision was aimed at providing economic stability.

“Expansionary monetary policy such as cutting the cash rate is used to assist the economy when it’s declining in health,” she said.

“The RBA cutting the cash rate further may impact consumer confidence as it signals the economy is in trouble.”

AMP Capital senior economist Diana Mousina says the decision to leave rates unchanged was suitable this month but they may need further cutting down the track to give the recovering economy a boost post-coronavirus.

“The central bank used a lot of its firepower in March when it cut the cash rate to 0.25 per cent, introduced a three-year yield target of 0.25 per cent and announced a cheap funding facility for banks,” she told Domain.

“So for now, the Reserve Bank has probably done enough to keep monetary conditions very easy for households and businesses. But, looking ahead, more support is likely to be needed for the economy as GDP growth is unlikely to get back to pre-COVID levels for another two years,” Ms Mousina said.

The low interest rates will certainly not do the property industry any harm right now but rising unemployment thanks to COVID, easing government stimulus measures and general economic uncertainty are all sure to keep holding things back.

“The lockdowns in Victoria are especially negative for property prices in the state,” Ms Mousina told Domain.

“While economic growth is slow and the unemployment rate is high, we expect another 10 per cent fall in national property prices over the next year, with the largest falls in Sydney and Melbourne.”

Lendi chief executive David Hyman said interest rates from the banks and non-major lending were super competitive and it’s a great time to refinance.

“Credit is cheap right now and the banks are fighting it out for new customers,” he said.

“So it’s the ideal time to refinance if your lender won’t negotiate.”


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