Drum roll please…
At today’s Reserve Bank of Australia (RBA) board meeting today they have decided to leave rates on hold at the historical low official cash rate of 1.5% p.a.
As we have discussed many, many times over the last 18 months the RBA has been stuck between a rock and a hard place.
Inflation and wages growth have been low whilst household debt and property prices, particularly in Sydney, have been high.
Raising interest rates now would potentially put highly indebted households under strain, leading to decreased consumer spending in this group which in turn would potentially drive down GDP growth. Additionally, any increase in official interest rates might drive the AUD up leading to a lowered global competiveness for our exporters and again a reduction in GDP growth. Dropping interest rates down to say 1.25% might just add further fuel to asset prices leading to an unacceptable financial stability risk.
Although there are some indicators that the global economy is strengthening in its recovery efforts post-GFC, and there has been an unwinding in monetary stimulus, the recovery is still fragile. In fact, Saxo Bank in its Q2 economic outlook is placing the chances of this recovery derailing and the US economy moving into a recession at 60%.
According to the RBA Statement on the Monetary Policy Decision by Philip Lowe, we have seen:
- The price of oil has increased recently, as have the prices of some base metals.
- Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.
- The Bank’s central forecast for the Australian economy remains for growth to pick up, to average a bit above 3% in 2018 and 2019.
- Employment has grown strongly over the past year, although growth has slowed over recent months.
- Inflation remains low. The recent inflation data were in line with the Bank’s expectations, with both CPI and underlying inflation running marginally below 2%.
- The Australian dollar has depreciated a little recently, but on a trade-weighted basis 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.
- The housing markets in Sydney and Melbourne have slowed
- 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.
Media Release: rba.gov.au
So once again based on the currently available economic data, The Property Mentors research team is expecting rates to remain at current levels for the foreseeable future. To find out what this means for you and your investments in greater details, why not book in an appointment with one of our experienced Senior Property Mentors by clicking here!
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