Experts comment on the September 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’s some interesting expert commentary:

Martin Lakos ( Macquarie) comment:

It was widely expected that the RBA would keep official interest rates on hold at 1.5% at its latest meeting and they didn’t surprise.

The distraction of the  political turmoil over the past month is unlikely to have impacted the economic outlook for Australia, with our forecast for GDP growth of 3%, intact.

Labour force data released in the past month was positive with the unemployment  rate improving to 5.3% and momentum in jobs growth remaining above average.

It remains Macquarie’s view that interest rates will stay on hold until 2020.

Source: Macquarie

Comments from Tim Lawless:

investor-enquiry-form

There are plenty of factors keeping interest rates on hold, but top of mind is the fact that mortgage rates are already edging higher as lenders look to balance their profit margins against higher  funding costs and a smaller deposit base.

With the first of the Big Four banks announcing an out of cycle rate hike, the prospects for a higher cash rate have likely been pushed back even further; we could even see debate for a lower cash rate becoming more prominent.

Plenty of slack remains in the labour market, housing prices are trending lower, household debt levels are at a record high, core inflation is tracking below the RBA’s target range of 2-3% and retail trade is slow.

With all this in mind, financial markets are betting the cash rate will stay on hold until at least January 2020.  property mortgage

Despite the outlook for a stable cash rate, but slightly higher mortgage rates, we can expect lenders to remain hyper competitive, particularly for high quality borrowers – those with large deposits, lower debt to income ratios and a strong credit history.

Even with mortgage rates starting to edge higher, from a historical perspective, rates remain extremely low which will continue to support housing demand.

No doubt borrowers will be applying pressure on their lenders to ensure they are on the lowest rate possible.

Source: Corlelogic

Comments from the RBA:

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

The global economic expansion is continuing. RBA

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

Growth in China has slowed a little, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector.

Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets.

One ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

Financial conditions remain expansionary, although they are gradually becoming less so in some countries.

There has been a broad-based appreciation of the US dollar this year.

In Australia, money-market interest rates are higher than they were at the start of the year, although they have declined somewhat since the end of June. economy

These higher money-market rates have not fed through into higher interest rates on retail deposits. Some lenders have increased mortgage rates by small amounts, although the average mortgage rate paid is lower than a year ago.

The Bank’s central forecast is for growth of the Australian economy to average a bit above 3 per cent in 2018 and 2019.

In the first half of 2018, the economy is estimated to have grown at an above-trend rate.

Business conditions are positive and non-mining business investment is expected to increase.

Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports.

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

Household income has been growing slowly and debt levels are high.

The drought has led to difficult conditions in parts of the farm sector.

Australia’s terms of trade have increased over the past couple of years due to rises in some commodity prices.  Economic growth

While the terms of trade are expected to decline over time, they are likely to stay at a relatively high level.

The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, but it has depreciated against the US dollar along with most other currencies.

The outlook for the labour market remains positive.

The unemployment rate has fallen to 5.3 per cent, the lowest level in almost six years.

The vacancy rate is high and there are reports of skills shortages in some areas.

A further gradual decline in the unemployment rate is expected over the next couple of years to around 5 per cent.

Wages growth remains low, although it has picked up a little recently.

The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process. Mortgage Concept By Money House From The Coins,business Finance And Money Concept,saving Money Concept To Buy A House.

Inflation is around 2 per cent.

The central forecast is for inflation to be higher in 2019 and 2020 than it is currently.

In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower, at 1¾ per cent.

Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

Housing credit growth has declined to an annual rate of 5½ per cent.

This is largely due to reduced demand by investors as the dynamics of the housing market have changed.

Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets.

There is competition for borrowers of high credit quality. economy-property-market-grow-wealth-house-dream-first-home

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

Comments from the Finder.com.au RBA Survey:

Recent out-of-cycle rate hikes may be cushioned by subdued property prices with experts and economists predicting the downturn in Sydney and Melbourne to last 20 months on average.

Graham Cooke, Insights Manager at finder.com.au, says falling property prices in some of the capital cities means the outlook for housing affordability has improved.

Finder

While the out-of-cycle rate movements aren’t promising for first home buyers, this may be offset by a cooling market as now could be the time for them to get in while prices are low.

“For many would-be home buyers, a lower sales price represents a saving that could outweigh the costs of a higher interest rate, so first time buyers may experience some cushioning against rising rates,” he said.

Here’s what our experts had to say: 

Michael Yardney, Metropole Property Strategists: “There is no reason to alter interest rates. Our weakening housing markets, low inflation rate and soft wages growth suggest no rise in rates is imminent in the medium term. If anything this would dampen already sluggish consumer confidence which has already taken a hit over the last month.” 12374331_l

Jordan Eliseo, ABC Bullion: “The RBA will hold interest rates at 1.50% at their next meeting, continuing a run of stability that now dates back over 2 years. Consumer confidence has been hit by the recent political chaos in Canberra, and job growth in the economy will likely slow down in the lead up to the next election, but the RBA is still reticent to cut, despite numerous headwinds the economy is facing.”

Tim Nelson, AGL Energy: “RBA has stated that it continues to expect inflation to be around 2.25% over the next couple of years as above-trend GDP growth reduces spare capacity in the labour market and there is an associated pick-up in wages growth.”

Shane Oliver, AMP Capital: “While economic growth picked up a notch in the first half of the year its premature to start raising rates as uncertainty remains around the outlook for consumer spending, the housing cycle both in terms of construction and home prices has now turned down, and wages growth and inflation remain low. So remaining on hold makes sense and this is likely to remain the case for some time to come.”

Alison Booth, ANU: “Fundamentals have not changed sufficiently to warrant changing the cash rate.”

Richard Robinson, BIS Oxford Economics: “inflation and wages growth is low.”

Paul Dales, Capital Economics: “The RBA is patiently waiting to see if the unemployment rate falls as it is hoping and inflation rises back to the 2-3% target rate. I suspect it will be waiting for a long time yet.”

Saul Eslake, Corinna Economic Advisory: “The RBA has made it clear that although it thinks the next move in interest rates will most likely be up, it is in no hurry to act on that inclination. And nothing has happened since the last meeting to have prompted them to change that view.” Economy

Peter Gilmore, Gateway Bank: “The economic fundamentals remain largely unchanged.”

Mark Brimble, Griffith Uni: “No reason to move with inherent weakness in the economy exacerbated by political and regulatory uncertainty both domestically and internationally.”

Peter Haller, Heritage Bank: “There is no reason for the RBA to change rates at the present time.”

Paul Bloxham, HSBC Bank Australia Limited: “Inflation is still below the target band.”

Alex Joiner, IFM Investors: “The RBA finds itself between a rock and a hard place, the economy does not as yet justify higher policy rates, but equally it can not foster any better conditions that might see inflation accelerate more quickly because of the financial stability constraints it has, rightly in my view, it has also chosen to focus on.”

Michael Witts, ING Bank: “Despite the increase in mortgage rates from one of the majors, this is unlikely to alter the RBA stance.”

Leanne Pilkington, Laing+Simmons: “There’s no compelling reason for the RBA to adjust the official cash rate at this time. Of greater interest is the approach the banks are taking with their lending terms. Some are cutting fixed rates in an attempt to build market share. Honeymoon interest rate deals are in vogue to attract first home buyer attention, but it’s necessary to crunch repayment numbers based on the actual rate you’ll be paying once the honeymoon is over. There’s significant rate movement irrespective of the RBA at the moment.”

Nicholas Gruen, Lateral Economics: “That’s what they keep saying they’ll do.”

Mathew Tiller, LJ Hooker: “No major changes to economic conditions over the past months will see RBA hold the cash rate steady. In addition banks and lenders continue to change their Reserve Bank Of Australia interest rates independently of the RBA.”

Mark Crosby, Monash University: “The RBA has signalled its intent to hold rates for some months yet, though it is good to see some discussion about whether the current inflation target remains appropriate.”

Dr Andrew Wilson, My Housing Market: “Macro environment relatively unchanged although out of cycle rate rises will be closely monitored by RBA if the level of increases impacts already constrained consumption.”

Alan Oster, NAB: “The RBA has stated that for the time being, they wish to be a source of stability and confidence in the economy. Rates are low and supporting economic growth which should see employment continue to grow and the unemployment rate decline further. At present there appears to be some degree of spare capacity in the labour market with relatively weak wages growth and inflation only just around the bottom of the RBA’s target band. The RBA is likely to continue this on this track until it is convinced spare capacity has fallen, wages growth is lifting and inflation rising more generally. This is only expected to occur gradually.”

Jonathan Chancellor, Property Observer: “The central bank doesn’t need to make any move.”

Matthew Peter, QIC: “While the RBA is clearly on hold for the time being, the market is not pricing a rate hike until 2020. But with growth picking up, the labour market tightening and the AUD heading to US70c, the RBA will surprise markets with a rate hike, probably as soon as the June quarter of 2019.”

Noel Whittaker, QUT: “No reason to move either way.” interest-rate-sign

Nerida Conisbee, REA Group: “The next move is still likely to be an increase but for now, the economy is not strong enough to start increasing.”

Christine Williams, Smarter Property Investing Pty Ltd: “We have had a positive effect re unemployment, now under 6% together with a strong outlook in the job sector, both with full time and part-time positions. I feel this needs to stay on an upward trend [for] least 1 more quarter before the Reserve Bank increases rates.”

Janu Chan, St.George Bank: “Ongoing low inflation and expectations it will stay low for some time allows the RBA room to leave rates on hold.”

Brian Parker, Sunsuper: “Still plenty of labour market slack, and wage and price inflation not picking up anywhere near fast enough to prompt higher rates.”

Richard Holden, UNSW: “They should cut but can’t. Labor market is weak. Inflation low.”

Clement Tisdell, UQ-School of Economics: “The Australian economy is not overheated. Demand pull inflation is not at work. Cost push could become a problem. Private interest rates are liable to increase.”

Other participants: Bill Evans, Westpac.

Source: www.finder.com.au



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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


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