RBA 'only had two choices' at August meeting

by AB07 Aug 2013

The RBA had only two options at yesterday’s meeting: to keep rates on hold at 2.75% or cut them further, according to Mortgage Choice head of corporate affairs, Belinda Williamson.

“With the uncertainty of the current economic environment, the possibility of the cash rate rising was never an option. There has been a lot of discussion recently about the signs that would warrant a hold versus those that would permit a further cut.”

Williamson says a cash rate hold this month ‘would not have been out of place’, considering the signs of economic improvement starting to show up, including a house price rise of 3.5% in the past few months, increasing housing finance commitments and steady consumer confidence.

“However, the encouraging signs in the property market and consumer sentiment don’t appear to have been enough for the Reserve Bank to confidently rest on its laurels. The decision to cut rates again, in an attempt to further stimulate the economy, would have been made by also taking other economic factors into consideration.”

On such factor, she says, is ‘shaky’ business confidence.

“There is concern that unemployment may rise if the gap left by the peak in mining investment is not filled by an increase in business investment in the non-mining sectors, including the property market.”

Mortgage Choice believes that in light of the cash rate cut, the message for homebuyers and investors is clear – while business confidence, unemployment concerns and even political uncertainties in relation to the upcoming election simmer, the bottom of the current property market cycle would appear to have past. This combined with low interest rates means buyers and sellers alike can look to capitalise.

“Now is a great time for clued-in and prepared buyers to consider entering the property market, to get in ahead of the rising trajectory of property prices and to take advantage of the historically low interest rates,” says Williamson. “At the same time, sellers should heed the cash rate cut as a signal to spruce-up their property now in the lead up to the spring selling season.”