The Reserve Bank of Australia (RBA) announced on Tuesday that it is keeping the cash rate unchanged at 1.50% as the bank continues to track the property market.
RBA said that the low level of interest rates is backing the robust economy – the GDP rose by 3.4%, and growth is forecast to average just above 3% in 2018 and 2019.
CoreLogic Head of Research Tim Lawless said that RBA’s decision was expected, noting that financial markets didn’t expect a move in the cash rate throughout 2019 and into 2020.
“Despite the housing downturn gathering some pace in September, with CoreLogic’s national index recording the largest fall in dwelling values over any three month period since late 2011, we don’t expect the RBA to throw a lifeline to the housing market in the form of lower interest rates,” he shared.
Lawless pointed out that the central bank gives significant weight to the home market.
“Considering dwelling values comprise around 55% of household wealth and about 70% of household debt, the RBA has a keen interest in the housing markets performance. Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August,” he said.
True enough, in an RBA update on Sydney and Melbourne housing markets conditions in Governor Philip Lowe’s statement regarding the monetary policy decision. The bank mentioned that the markets of the two capital cities have continued to ease and nationwide measures of rent inflation remain low.
Nevertheless, the bank implied that the next move on interest rates will likely be a raise. “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” the bank stated.
Inflation is around 2%, and the unemployment rate has dropped to 5.3%, marking the lowest level it has been in almost six years.
