RBA delivers May cash rate call

by Miklos Bolza02 May 2017
The Reserve Bank of Australia (RBA) has kept the official cash rate on hold at 1.5% for the ninth month in a row.

This decision was widely anticipated by economic and finance experts across the country given the current national and international environment.

Finder.com.au’s monthly survey found that 34 out of 34 economists predicted rates would remain steady while around 96% of mortgage brokers polled by HashChing said the same.

Tim Lawless, head of research at CoreLogic, said that while a broad range of economic factors would have been considered in today’s RBA board meeting, the housing market would have been front and centre in the conversation.

“Capital city dwelling values have increased by almost 10% since the latest round of rate cuts in May and August last year, led by gains of around 13% in Sydney and Melbourne.”

This surge in housing prices coupled with a rebound in investment-related credit growth was cause for concern, he said. However, there were indications of a softer market with capital city dwelling values falling flat in CoreLogic’s latest April figures.

With investor mortgage rates already on the way up and further hikes predicted, higher interest rates had the potential to take some of the heat out of the housing market especially in the investment sector, Lawless said.

“A housing market slowdown would relieve one of the key concerns the RBA has relating to financial stability, however the Reserve Bank would likely be seeking confirmation of a slowdown from a longer trend of slower capital gains and lower credit growth.”

John Flavell, CEO of Mortgage Choice was also unsurprised that the RBA left the cash rate untouched, especially with Australia’s robust housing market, slight increases in inflation, and low unemployment levels.

Despite the RBA’s decision to keep the cash rate at 1.5%, Flavell said that several out-of-cycle rate moves had already been made by the banks.

“Over the last couple of months, there has been a lot of volatility in the global markets, which has resulted in increased funding costs for many of Australia’s lenders, which has led to higher home loan interest rates across the board,” he said.

“Australia’s lenders have made some changes to their pricing and policy, and I would expect to see more of this over the coming weeks and months.”

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