Experts comment on the August RBA interest rate decision [Video]

After two interest rate cuts – today the Reserve Bank of Australia has kept rates on hold at 1%.

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

Here’s what the experts have to say:

Martin Lakos ( Macquarie) comment:

Following consecutive rate cuts in June and July, the RBA at its latest interest rate meeting has paused by keeping the official cash rate steady at 1%. reserve bank

This comes as no real surprise as we had been expecting the bank to observe the impacts of its recent cuts before reassessing the need for further action.

This decision would have factored that in the past month, a range of data and events are signalling that the domestic and international backdrop is in a state of flux.

Markets are now fully pricing in a 0.25% rate cut by October, with a very high chance of a follow-up in the easing of rates early next year also priced in.

Source: Macquarie

Comments from Tim Lawless:

The RBA’s decision to hold the cash rate at a record low of 1.0% was widely expected, coming after two consecutive months where the cash rate was slashed by a total of fifty basis points.

The pause in the cutting cycle will give the RBA time to assess the effects of earlier rate cuts on the economy and consumer spending, however there is a strong likelihood of at least one more cut later this year.

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The housing market has been a key beneficiary of lower mortgage rates, with a trend towards stability over the first half of the year converting to a subtle rise in capital city housing values in July.

The improvement in housing market trends can’t be attributed entirely to lower interest rates, there has also been the added stimulus of looser home loan serviceability assessments, following APRA’s decision to scrap the minimum seven percent interest rate floor used to assess a borrower’s ability to repay a mortgage, as well as the confidence injection post federal election and tax cuts for low income earners.

With mortgage rates set to remain low for an extended period of time, as flagged by RBA Governor Lowe in a speech last month, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery, however with credit policies remaining tight and economic uncertainty still elevated, we aren’t expecting a material acceleration in housing activity or housing values.

Source: Corlelogic

Comments from the RBA:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.00 per cent.

The outlook for the global economy remains reasonable. Reserve Bank Of Australia

However, the increased uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy remain tilted to the downside.

In most advanced economies, unemployment rates are low and wages growth has picked up, although inflation remains low.

The slowdown in global trade has contributed to slower growth in Asia.

In China, the authorities have taken steps to support the economy, while continuing to address risks in the financial system.

Global financial conditions remain accommodative.

The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected.

Long-term government bond yields have declined further and are at record lows in many countries, including Australia.

Borrowing rates for both businesses and households are also at historically low levels. Interest Only Lending Australia

The Australian dollar is at its lowest level of recent times.

Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices.

Looking forward, growth in Australia is expected to strengthen gradually from here.

The central scenario is for the Australian economy to grow by around 2½ per cent over 2019 and 2¾ per cent over 2020.

The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some housing markets and a brighter outlook for the resources sector.

The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending.

Employment has grown strongly over recent years and labour force participation is at a record high.

There has, however, been little inroad into the spare capacity in the labour market recently, with the unemployment rate having risen slightly to 5.2 per cent.

The unemployment rate is expected to decline over the next couple of years to around 5 per cent.

Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply. 33719931_l

Caps on wages growth are also affecting public-sector pay outcomes across the country.

A further gradual lift in wages growth would be a welcome development.

aken together, recent labour market outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

The recent inflation data were broadly as expected and confirmed that inflation pressures remain subdued across much of the economy.

Over the year to the June quarter, inflation was 1.6 per cent in both headline and underlying terms.

The central scenario remains for inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 per cent.

In both headline and underlying terms, inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.

Conditions in most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne. Hand Drawing A Graph About Real Estate Market Concept Image

Growth in housing credit remains low.

Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight.

Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target.

The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time

Source: www.rba.gov.au

Comments from the Finder.com.au RBA Survey | Property prices to rise in all capitals as cash rate holds

RBA Survey: Property prices to rise in all capitals as cash rate holds

  • Property values are set to rise by August 2020 across the nation, according to Finder, Australia’s most visited comparison site.
  • In the latest Finder RBA Cash Rate Survey™ – the largest of its kind in Australia – experts and economists gave their forecasts on 12-month change of property prices in Australia’s capital cities.
  • With property prices showing the second rise in as many months in Sydney and Melbourne, experts, on average, now anticipate the property market on the way up over the next year.
  • 12374331_l
  • Graham Cooke, insights manager at Finder, said it’s too soon to tell if this is an emerging recovery in the housing market or merely a ‘dead-cat bounce’.
  • “In finance, the saying is that even a dead cat will bounce if it falls from great heights.
  • “Most economists surveyed foresee small levels of growth across the board, but a few tipped prices to tumble, especially in Sydney and Melbourne where one expert predicted a 7% drop.
  • “Whether you see this as a falling feline or the beginning of a true rebound, it’s clear that the full effects of the RBA’s recent cuts have yet to play out.
  • “However, after one of the strongest weekend clearance rates in Sydney in recent months (71%), there is definitely a detectable pulse,” Cooke said.
  • Of all the capital cities, Canberra came out on top with a 2.27% predicted growth on average, followed by Hobart (2.19%) and Brisbane (1.81%).
  • Cooke said those considering getting on the property ladder need to get their ducks in a row.
  • “Prospective first time buyers should look at arranging pre-approval for finance soon if they want to take advantage of low rates before prices increase.”
  • With rates at an all-time low, the Reserve Bank of Australia (RBA) held the cash rate at 1.00% for the first time in three months.
  • Nearly all (96%, 44/46) experts surveyed predicted the hold, although up to two more cuts are likely by the end of the year.

Fixed rates dropping

  • Recently, three of the Big Four (ANZ, Commonwealth Bank and Westpac) cut fixed-rate home loans by as much as 96 basis points, nearly double the size of the RBA’s two latest cash rate cuts. Reserve Bank Of Australia
  • Jacqueline Dearle of Mortgage Choice said this drop in fixed rates suggests that lenders’ long-term outlook is that rates will remain low, but demand is yet to pick up.
  • “[Our] data shows fixed rate home loans demand is the lowest in eight years (sitting at a mere 13.5%) and we have seen a significant spike in demand for variable loans at the end of July,” Dearle said.
  • Cooke said people might be missing a trick by not considering a fixed-rate loan.
  • “We’ve seen a lot of very low fixed-rate offers hitting the market of late, some as low as 2.79%.
  • “Fixed rates may be well worth considering – as we’ve never seen rates this low – but the best path may be a split loan.
  • “Think of this as the best of both worlds: if rates drop you get some of the benefits and if they increase you only get part of the pain.
  • “Even if you’ve been on a variable loan for five years, it’s not too early to refinance with rates at a record low,” Cooke said.

Source: www.finder.com.au

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