RBA makes cash rate decision

The Reserve Bank of Australia has announced its official cash rate for October following its monthly board meeting.

This afternoon, the RBA announced that it has decided to keep the official cash rate at the record low of 1.50 per cent.

The last time the cash rate moved was in August 2016.

The decision was foreshadowed by Reserve Bank assistant governor Michele Bullock last week, when she suggested that the Reserve Bank is worried that if capital growth slows, investors would put their properties on the market and hurt home owners in the process.

Further, all 31 panelists surveyed about the October cash rate on finder.com.au predicted that the rate would hold.

Mortgage Choice CEO John Flavell said that the decision to hold rates where they are stems from the consideration of domestic and global economic factors, which make it “easy to see why” the RBA put the cash rate on hold.

“On the domestic front, the economy is tracking well, with positive business conditions, improved consumer confidence and a relatively low unemployment rate,” Mr Flavell said.

“At a global level, things are also looking up. In the US, the Federal Reserve left the official cash rate on hold, citing a strengthening labour market and moderate growth in economic activity as the basis for their decision.”

Michael Witts of ING Direct agreed, saying: “The economy is heading in the right direction and there is no need for RBA action at this stage.”

CoreLogic’s head of research, Tim Lawless, suggested that a cooling housing market could raise the cash rate in the future, looking to how it has influenced property prices.

“CoreLogic’s hedonic home value index reported the first month-on-month decline in Sydney dwelling values since March last year when the previous round of APRA regulatory changes were flowing through to credit policies and reducing investor participation,” Mr Lawless said.

“That previous slowdown in housing market growth reversed when the cash rate was cut in May and August last year and investment credit growth accelerated.

“No such lifeline is likely to eventuate this time around, and in all likelihood, we will continue to see the trend rate of growth easing across the Sydney and Melbourne housing markets.”

Despite the domestic economy improving, Mr Lawless said that wage growth and inflation are “subdued”, and with the cooling housing market, these factors are likely to ease pressure on the RBA to push the cash rate higher.

John Caelli of ME Bank said that he “clearly” saw the next move, whenever it might be, to be an increase.

Nerida Conisbee of REA Group agreed, but added that she did not believe there would be a rate rise in the near future.

“The economy is too weak to increase rates and the housing market is too sensitive to cuts to decrease them,” Ms Conisbee said. 

  

[Related: RBA fears property investors could bring the market down]

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Sasha Karen

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