RBA Monetary Policy Decision: 4 April 2017

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Unsurprisingly, the Board of the RBA has decided to leave the cash rate unchanged at 1.50%.

As we have said since late last year, we don’t expect conditions in Australia, or globally, to push the RBA off the fence anytime soon.

Unfortunately, in Australia, rising property prices in Sydney and Melbourne, fueled in large part by the ultra-low interest rate environment, have the RBA stuck between a rock and a hard place. 

That is, the Australian dollar is no doubt uncomfortably high for the RBA and they would like to see the exchange rate drop to make our exports more competitive. 

Given that Australia is a resource rich country, and that commodity prices and the AUD historically track strongly together, the recent rebounds in commodity prices has seen the AUD remain stubbornly around the US $0.76 range, despite the official cash rate sitting at 1.5%. 

Inflation remains well below the RBA target band, wages growth is anaemic, and GDP growth is only modest at best. 

So whilst the RBA could conceivably drop the official cash rate to boost growth, the systemic risk introduced by runaway house prices (notably largely in Sydney and Melbourne) makes it unlikely this will happen in the near term. However, low wages growth, low inflation data, and the mild GDP growth will see them in no hurry to lift them though either. The RBA could well end up with some pretty big splinters, as given the current conditions they could be on the fence for some time to come.

However, the heavy lifting to cool house prices is being left to the Australian Prudential Regulatory Authority (APRA), with a raft of new macro prudential measures designed to help cool the investor segment of the property market. They have left the speed bump to investor loan growth in place at 10%, but under new rules announced last week will limit new interest-only lending to 30% of total new residential mortgage lending. 

There will also be further limits placed on the volume of interest-only loans when the deposit on the property is 20% or less. There will be even tighter restrictions on lending at a loan-to-value ratio above 90%.

The corporate watchdog ASIC has also joined the banking regulator in cracking down on interest-only (IO) home loans, announcing targeted surveillance of lenders and mortgage brokers inappropriately spiking IO loans.

And the banks themselves have recently lifted interest rates across the board for both investors and owner-occupiers, citing increased funding costs from overseas (although this only accounts for about 40% of their funding).

With current interest rates at record lows, and APRA, ASIC, and the banks all changing their lending policies, now is a good time to speak with an expert to re-assess your plans. Especially with the Victorian government announcing 7 significant policy changes, now is the time to give us a call for a free chat about your situation, and what all these changes could mean to your wealth. Call us at (03) 8842 9399 or send us a message at info@thepropertymentors.com.au, and we’ll get back to you right away.