RBA holds its nerve and keeps rates at 1%

The Reserve Bank left interest rates on hold yesterday but many economic experts think they’ll be cut as soon as next month.

RBA governor Philip Lowe said the country’s economic growth so far this year had been below expectations, mainly due to stagnant wage growth and the falling property market.

“Looking forward, growth in Australia is expected to strengthen gradually to be around trend over the next couple of years,” he said in his statement yesterday.

“The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilization in some established housing markets and a brighter outlook for the resources sector.

One of the things the RBA has no doubt taken note of is the property markets of Melbourne and Sydney, which look to have bottomed out and are showing signs of increased prices.

“In line with rate cuts in June and July, housing values in Australia’s two largest cities have recorded a lift, with dwelling values rising 1.9 per cent and 1.8 per cent in Sydney and Melbourne over the past three months,” CoreLogic’s Tim Lawless told News.com.

“August data showed CoreLogic’s national index recorded its first month on month rise since October 2017 and five of the eight capital cities saw dwelling values increase.”

“Clearly housing market conditions are responding to lower interest rates as well as the recent loosening of loan serviceability rules from APRA and the positive influence of the stable federal election outcome,” Mr Lawless said.

“The recent step up in the pace of value growth is likely to raise some concern that the lowest mortgage rates since the 1950s is fuelling renewed housing market exuberance at a time when household debt remains around record highs.”

Mr Lawless said the high household debt was okay while interest rates remained at record lows but may cause problems if and when they started to rise again.

Economists like AMP Capital’s Shane Oliver say they expect possibly two more interest rate cuts from the RBA before 2019 is out.


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