RBA leaves cash rate on hold in September.
THE RBA has kept the official cash rate on hold at its record low, amid growing signs of a housing slowdown.
THE Reserve Bank has kept the official cash rate on hold at its record low of 1.5 per cent for the 13th month in a row, amid growing signs of a housing market slowdown.
The RBA last cut the cash rate in August 2016, following an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.
“Conditions in the housing market continue to vary considerably around the country,” RBA Governor Philip Lowe said in his statement. “Housing prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney. In some other markets, prices are declining.”
CoreLogic head of research Tim Lawless said the slower housing market conditions would have been a key topic of conversation at the September board meeting.
“CoreLogic home value figures released last Friday confirmed that the pace of capital gains has slowed in Sydney and Melbourne,” he said.
“These are the two housing markets that have caused the most concern for policy makers because of the previously high rates of capital gain that had been running since early 2012, coupled with record high levels of household debt and high concentrations of investment.”
Mr Lawless said tighter credit policies had “so far done much of the heavy lifting” to cool down Sydney and Melbourne housing markets, despite some commentators calling for rate hikes.
“With growth conditions across the housing sector moving back to a more sustainable level of growth, the likelihood of a cash rate hike in 2017 appears highly unlikely,” he said.
With Australia’s record high debt-to-income ratio sitting at 190 per cent, the RBA would be “very mindful of the capacity for Australian households to service their debt without a broader dent on household consumption”.
AMP Capital chief economist Dr Shane Oliver said “basically the RBA and rates are stuck between a rock and a hard place”.
“Strong business confidence and jobs growth, the RBA’s expectations for a growth pick up and worries about reigniting the Sydney and Melbourne property markets argue against a rate cut,” he wrote in a client note.
“But record low wages growth, low underlying inflation, the impending slowdown in housing construction, risks around the consumer and the rise in the Australian dollar argue against a rate hike. So it makes sense to leave rates on hold at 1.5 per cent and this is likely to remain the case out to late next year at least.”