RBA makes December cash rate call

by Miklos Bolza06 Dec 2016
The Reserve Bank of Australia (RBA) has kept the official cash rate on hold at 1.5% in a decision that was widely predicted by economists across the country.
“There are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates,” said Tim Lawless, head of research at CoreLogic.
Furthermore as rate cuts in May and August spurred on investment activity, a repeat of this could further incentivise investors which may push house prices even higher, he added.
John Flavell, CEO at Mortgage Choice, expressed similar sentiments saying that there was “no reason” for the RBA to change its current stance on monetary policy.
“According to the Westpac Melbourne Consumer Sentiment Index, confidence fell 1.1% in November to 101.3,” he said. “Meanwhile, property prices across the combined capital cities rose 0.2% throughout November, taking property prices 9.3% higher over the last 12 months.”
With the next RBA meeting on 7 February, the Bank will have time to consider housing market performance for the final quarter of 2016 as well as September’s GDP figures and inflation numbers for the December quarter, Lawless said.
“Additionally there will be further clarity on the US economy where unemployment has reached a nine year low and interest rates are about to start ratcheting higher.
“At 1.5%, the cash rate is still highly expansionary and, together with other factors, is likely to keep housing demand strong.”
Looking toward 2017, Flavell predicts that future rate increases are just around the corner.
“There is growing speculation that the United States’ Federal Reserve will lift the official cash rate at its next Board meeting on December 14. If this happens, we could see the Reserve Bank follow suit and lift rates as early as February 2017.”
Furthermore, increases in long-term bond rates also support the theory that interest rates will soon rise – meaning that the bottom of the rate cycle may well have already come and gone, he said.