RBA makes cash rate call

by Julia Corderoy07 Apr 2015
The Reserve Bank has left the cash rate untouched today at 2.25%, amid concerns over risks in the housing sector. 

According to a monthly Reserve Bank survey, economists and analysts largely tipped the cash rate to remain on hold this month. The survey compiled by finder.com.au found that 32 of the 42 economists and analysts surveyed (76%) expected the cash rate to remain steady at 2.25% today.

Jessica Darnbrough, spokesperson for Mortgage Choice says Sydney’s surging property market ultimately encouraged the Reserve Bank to leave the cash rate alone. 

“Over the last 12 months, Sydney’s property values have shot up almost 14%, with research conducted by RP Data showing values in the capital city rose by 3% in March alone,” she said.

“Across the country, Sydney is the only housing market where dwelling value growth remains in double digits, with the next strongest performer, Melbourne, showing a much slower rate of annual capital gain at just 5.6%. While the rest of the capital cities are experiencing more moderate growth, the RBA is clearly still wishing to tread carefully when it comes to Sydney and do not wish to do anything that could inflate the capital city’s housing market further.”

In the minutes of the March monetary policy board meeting, the Reserve Bank noted that risks “continued to be centred on housing and mortgage markets”, admitting that the recent decline in interest rates could further boost prices.

Savanth Sebastian, economist for CommSec says the Reserve Bank may be cautious of monetary policy losing its ability to encourage spending.

“Rate cuts have lost their lustre – confidence levels haven't spiked since the February cut,” he said in his response to the finder.com.au survey. 

Speaking to the Goldman Sachs Annual Global Macro Economic Conference last month, RBA deputy governor Philip Lowe admitted that monetary policy isn’t stimulating the economy the way it has in the past.

However, 74% of respondents to the finder.com.au Reserve Bank Survey are still expecting the cash rate to fall by June this year, with another 21% forecasting a cut between July and September this year.
 

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