RBA keeps cash rate on hold, but pressure's on for final cut in Q4

by Mackenzie McCarty04 Sep 2013

Few economists were expecting a rate cut at yesterday’s RBA meeting, but the pressure is still on for further reductions in the final quarter of 2013.

Mortgage Choice CEO, Michael Russell, says it’s clear that the effects of previous cuts are beginning to flow through into more positive economic data and this month, with spring ‘on our doorstep’, that is likely to be the case again.

Russell says there’s been a ‘significant’ increase in lending volumes and that house prices are also starting to move upwards as auction clearance rates rise.

“Our eyes will be on the data during the month ahead as to whether rate cuts are likely in future. We will also be keeping a close eye on whether consumer and business confidence picks up further following the federal election as many businesses have likely been holding back from making key investment decisions until they know who will be living in the Lodge,” says Russell.

However, Housing Industry Association (HIA) chief economist, Dr Harley Dale, says the RBA needs to move again in the final quarter of 2013, given the ‘modest nature’ of the recovery underway in residential construction.

"A final round of interest rate cuts in late 2013 would coincide with a likely boost to household and business confidence following the federal election. That combination would help set the platform for a sustained recovery in new home construction and a turnaround in renovations investment," says Dale.

Russell largely agrees, saying it’s important to bear in mind that, even though the RBA chose to keep rates on hold this month, it still has an easing bias, so it’s unlikely that it will start lifting rates any time soon.

“Mortgage holders and those looking to invest in property should see this month’s decision by the RBA as a positive start to the spring buying and selling season. Interest rates are at historically low levels, and this means that the cost of borrowing is more affordable than it has been in a very long time.”