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Interest Rates on Hold

Author: Tim Lawless
Source: CoreLogic

The RBA met industry expectations today, announcing its decision to hold the official interest rate at the record low of 1.5 per cent for August. The cash rate last moved in August 2016, shifting down to the current rate.

Tim Lawless comments: With headline inflation tracking slightly below the 2-3% target range, labour markets tightening and the economy continuing to grow, albeit at a pace below trend, the chances of a rate cut appear to have diminished.  However, rate hikes may be some way off as well; recent declines in the US dollar and strengthening commodity prices have placed added pressure on the Australian dollar, which may reduce export demand. Financial markets indicate the cash rate won’t rise until late 2018.  
 
The housing market was likely a key topic of conversation when the RBA met today and decided to keep the cash rate on hold. CoreLogic’s home value index showed a strong capital gain result in June and July, however the trend rate of growth suggests that the hottest markets, Sydney and Melbourne, have lost some steam after the first quarter of 2017.   The slowdown in housing market conditions can also be seen in softer auction clearance rates relative to earlier in the year as well as higher inventory levels which is taking some of the urgency away from buyers.  
 
While the cash rate remained on hold, mortgage rates have been edging higher since late last year, particularly for investors and interest only loans.  Higher mortgage rates against a backdrop of record high household debt levels and record low rental yields are gradually taking some heat out of the housing market and this situation is likely to have a further dampening effect on investor exuberance as credit policies continue to evolve.  

 


Tim Lawless
Director of Research
CoreLogic

Published: 1 August 2017.