Industry reacts to RBA rate hold

by Julia Corderoy05 Nov 2014
The Reserve Bank decided to leave the cash rate on hold at 2.5% for the fourteenth consecutive month yesterday – which has seen some mixed reactions from the broking industry.

Sam White, chairman of Loan Market, said while the decision to hold rates was widely predicted, he concedes it’s risky to keep interest rates this low when the property market is still so strong.

“Prices are a combination of supply and demand. Rather than just attacking the demand side we should be looking at policies which increase supply.”

However, White believes addressing demand issues with macro prudential measures – such as increasing the cost of capital for some segments of the home buyer market – would be preferable to the blunt instrument of increasing rates for all Australians. 

“The major concern we’d have by the introduction of macro prudential measures, is that they could be brought in too heavy, and that may have unintended consequences to a sector of the economy which is growing and providing job growth,” he said.

John Kolenda, managing director of 1300HomeLoan, believes the cash rate is well positioned at 2.5% and making any changes soon could be “disastrous”.

“Economic conditions would need to improve considerably before any rate increase. If the RBA’s next move is up we hope they don’t fire the starter’s gun too early because any premature increase is likely to have an adverse impact on consumer sentiment,” he said.

“We have consistently warned about the potential detrimental impact of the RBA lifting its cash rate prematurely in response to factors such as house prices, which are in a two speed market dominated by Sydney and Melbourne.

“Creating a more confident consumer climate required numerous rate decreases over the past few years and pulling the trigger too early could be disastrous.”

Harley Dale, chief economist of the Housing Industry Association says the extended period of low interest rates has boosted new home building, but it doesn't fix inherent supply side constraints.

"That will still leave a large number of aspiring home buyers locked out of the new housing market. There is a lack of titled residential land, excessive planning delays and restrictions, and a plethora of taxes and charges which combine to make new housing one of the most heavily taxed sectors of the Australian economy," he said.

"Low interest rates don't fix those constraints, but a lack of policy action to address them robs the Australian economy of a further burst of growth in new housing supply."