4 Experts comment on the February 2018 RBA interest rate decision [Video]

The Reserve Bank of Australia has kept rates on hold at 1.5%.

The decision to leave the cash rate on hold today came as no surprise to those following our economy.

To better understand the decision, here are 4 experts views:

Martin Lakos ( Macquarie) comment:

The Reserve Bank Board provided no surprises at its first interest rate policy meeting for 2018, leaving rates steady at 1.5 per cent.

The RBA hasn’t adjusted the cash rate since August 2016 – as it weighs the strength of the Australian dollar, the improving global economic outlook, with tepid inflation.

Macquarie’s view is that the RBA won’t raise rates until August this year, at the earliest.

Source: Macquarie

Comments from Tim Lawless:

33719931_l

With headline inflation remaining below the RBA’s target range of 2-3%, housing markets moving through a controlled slow down, a higher than forecast Australian dollar and household debt at record highs, the hold decision from the Reserve Bank was widely expected.

With national dwelling values now drifting lower, the RBA can now focus more on economic trends outside of the housing market when contemplating monetary policy settings.

According to CoreLogic’s’ hedonic indices, the heat has come out of the Australian housing market, with national dwelling values falling by 0.7% since peaking in September last year. 

ad_build_wealth

Falling dwelling values are the result of tighter credit conditions rather than any changes in monetary policy settings.

Despite the stable cash rate, investors have seen an average 40 basis points increase in their mortgage rates due to higher capital requirements from lenders, which has helped to slow investment demand and quell rapidly rising home values.

Interest rates won’t stay at their record lows forever.

Financial markets have fully priced a 25 basis point rise by February next year.

In the meantime, we expect housing market demand to be supported by low mortgage rates and high rates of population growth, despite the easing in capital growth rates that have been most evident in Sydney and, to a lesser extent, Melbourne dwellings.

Source: Corlelogic

Comments from the RBA:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.   economy

There was a broad-based pick-up in the global economy in 2017.

A number of advanced economies are growing at an above-trend rate and unemployment rates are low.

Growth has also picked up in the Asian economies, partly supported by increased international trade.

The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth.

The pick-up in the global economy has contributed to a rise in oil and other commodity prices over recent months.

Even so, Australia’s terms of trade are expected to decline over the next couple of years, but remain at a relatively high level.

Globally, inflation remains low, although higher commodity prices and tight labour markets are likely to see inflation increase over the next couple of years.

Long-term bond yields have risen but are still low.

As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus. low interest rates

Financial conditions remain expansionary, with credit spreads narrow.

The Bank’s central forecast for the Australian economy is for GDP growth to pick up, to average a bit above 3 per cent over the next couple of years.

The data over the summer have been consistent with this outlook.

Business conditions are positive and the outlook for non-mining business investment has improved.

Increased public infrastructure investment is also supporting the economy.

One continuing source of uncertainty is the outlook for household consumption.

Household incomes are growing slowly and debt levels are high.

Employment grew strongly over 2017 and the unemployment rate declined. 

Employment has been rising in all states and has been accompanied by a significant rise in labour force participation.

The various forward-looking indicators continue to point to solid growth in employment over the period ahead, with a further gradual reduction in the unemployment rate expected. 15101529_l

Notwithstanding the improving labour market, wage growth remains low.

This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time.

There are reports that some employers are finding it more difficult to hire workers with the necessary skills.

Inflation is low, with both CPI and underlying inflation running a little below 2 per cent.

Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.

A gradual pick-up in inflation is, however, expected as the economy strengthens.

The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.

On a trade-weighted basis, the Australian dollar remains within the range that it has been in over the past two years. 

An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. recession-australia-note-money-economy-squeeze-tighten-save-saving-budget-cut

In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.

To address the medium-term risks associated with high and rising household indebtedness, APRA introduced a number of supervisory measures.

Tighter credit standards have also been helpful in containing the build-up of risk in household balance sheets.

The low level of interest rates is continuing to support the Australian economy.

Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Source: www.rba.gov.au

Here’s what our experts had to say:

Michael Yardney, Metropole Property Strategists (Hold): “The RBA is likely to be pleased with the way our economy is performing with strong jobs creation and falling unemployment, meaning there is no strong impetus to lower rates. Similarly there is no reason to raise rates in the short term as our property markets have slowed down, thanks to APRA’s macroprudential controls.” interest-rate

Jordan Eliseo, ABC Bullion (Hold): “The RBA will hold rates where they are – economic data is still lukewarm at best, with latest inflation data still short of their targets, whilst credit growth is also soft. It is still our base case that the next move in rates is down, though the RBA will be in no rush to move the dial.”

Tim Nelson, AGL Energy (Hold): “A number of factors are serving to hold inflation down. December quarter consumer price inflation (CPI) report has come in slightly below expectations. Wage growth may pick up but likely to take time and even then it is unclear how this will manifest into inflation. Currency continues to be robust.”

Shane Oliver, AMP Capital (Hold): “While confidence, jobs and non-mining investment are strong, inflation remains below target, wages growth remains around a record low, uncertainty is high regarding the outlook for consumer spending and the Australian dollar is too strong. As such it is too early for the RBA to consider raising interest rates.”

John Hewson, ANU (Hold): “The RBA can’t afford to do otherwise given level of household debt.”

Alison Booth, ANU (Hold): “The fundamentals do not want any change to the cash rate at this time.”

Malcolm Wood, Baillieu Holst (Hold): “Despite recent improvements in business and consumer confidence, wage pressure remains low, household fundamentals challenged and underlying inflation below the RBA’s target band.”

Richard Robinson, BIS Oxford Economics (Hold): “inflation and wages growth is low, and unlikely to be a problem for at least 2-3 years, so a rate rise is not needed. Also, a rate rise will  interest-rate-signdrive up the A$, which will negatively impact growth. Economic growth is reasonable, so a rate cut is not warranted. A rate cut would also re-ignite the property market.”

Paul Dales, Capital Economics (Hold): “There is still not enough inflation to prompt the RBA to raise interest rates and concerns about the consequences of high household debt prevent the RBA from cutting rates.”

Saul Eslake, Corinna Economic Advisory (Hold): “Despite the pick-up in both economic and employment growth during the second half of last year, there remains a considerable margin of ‘spare capacity’ in the labour market, and to a lesser extent in the economy more broadly, which together with global factors is keeping both wage and price inflation below where the RBA wants it to be. The recent strengthening in the A$ to above US80c, albeit largely on the back of a weaker US$, is another complication the RBA would rather not have.”

Peter Gilmore, Gateway Credit Union (Hold): “The RBA will stay on hold through to last quarter of 2019.”

Mark Brimble, Griffith University (Hold): “The Board uncertainty in the market and a balance of upside and downside indicators will keep the RBA on the sidelines.”

Shane Garrett, Housing Industry Association (Hold): “Conditions with respect to inflation, the labour market, economic growth and the exchange rate do not justify a change in rates at this time.”

Alex Joiner, IFM Investors (Hold): “Labour market data has been strong but the remainder of the economy still requires support and inflation remains below the lower bound of the RBA’s RBAtarget – there is no need for a hike in the short term.”

Dr Andrew Wilson, Independent Economist (Hold): “The latest data is too benign for rate movement – low inflation, higher dollar, cooling house prices, positive labour market, declining building approvals, lower home investor activity – a mixed bag means wait and watch early days 2018 for RBA.”

Stephen, Koukoulas (Hold): “RBA continue to miss its inflation target and despite evidence that a rate cut is needed, it is likely to remain on hold. It will cite an improving global economy as a key reason.”

Leanne Pilkington, Laing+Simmons (Hold): “The most recent data indicates house price growth has slowed in the major capital city markets, reinforcing a wait-and-see approach from the RBA. The regulator’s efforts to dampen activity appear to be working, with tighter lending criteria having the desired effect, though it’s worth remembering that a pronounced decline in house prices will impact consumer confidence, so the situation is delicate.”

Nicholas Gruen, Lateral Economics (Hold): “There’s no excuse to raise rates.”

Mathew Tiller, LJ Hooker (Hold): “Despite strong employment numbers, inflation and wage growth both remain stubbornly low.” 12374331_l

John Caelli, ME (Hold): “There is no sense of urgency for the RBA to raise rates quite yet, particularly with a high dollar, low inflation and low wages growth.”

Mark Crosby, Monash University (Hold): “2018 will be watch and wait for the RBA, as they observe movements in overseas rates and ponder timing for a rate rise in Australia.”

Jessica Darnbrough, Mortgage Choice (Hold): “The domestic economy is tracking along quite well at the moment, giving the RBA no real reason to change their current monetary policy setting. Furthermore, given that the latest inflation data came in slightly below the RBA’s target band range, I would be surprised to see the Board move rates either up or down at the present time.”

Christopher Schade, MyState Bank (Hold): “While Australian economic data has, for the most part, been marginally than expected over the past few months, the Reserve Bank will leave rates at their current highly accommodative level for at least the next few months to allow the economy to continue to gather momentum. The economy is far from overheating, downside risks remain, inflation remains well contained, and the recent rise in the Australian dollar has served to tighten financial conditions for the Australian economy.”

Alan Oster, Nab (Hold): “Too early to move. Need signs of wages growth to support the consumer.” Economy

Matthew Peter, QIC (Hold): “Lack of inflation pressure and a high dollar act as counterpoints to a strong labour market and improving an improving growth outlook. RBA to keep rates on hold.”

Noel Whittaker, QUT (Hold): “The Aussie dollar is surging – the last thing the bank will do is pour fuel on the fire by increasing rates. And there is no way that will drop them.”

Nerida Conisbee, REA Group (Hold): “There has finally been some positive economic news that suggests that a rate rise will be on the cards this year. My view however is that it is still too early to make a move.”

Janu Chan, St.George Bank (Hold): “Low inflation, slow wage growth and ongoing spare capacity in the labour market will keep the RBA on hold in the near-term. ”

Brian Parker, SUNSUPER (Hold): “CPI was a little disappointing, but not enough for RBA to change its views.”

Clement Tisdell, UQ-School of Economics (Hold): “No economic reason to alter.”

Source: www.finder.com.au



icon-podcast-large

SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

 

NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

PREFER TO SUBSCRIBE VIA EMAIL?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Avatar for Property Update

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'4 Experts comment on the February 2018 RBA interest rate decision [Video]' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*

facebook
twitter
google
0
linkedin
0
email

Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!