C&G Unpacks the RBA’s March 2015 Announcement

Market Updates

Will they or won’t they? That’s the question that’s been on the lips of homeowners, stock traders and businesses around Australia over the last month: could the RBA really cut the national cash rate again? It seems the Reserve Bank board have decided to err on the side of caution and keep interest rates on hold at 2.25% - today, C&G unpack the motivation behind their decision and the impact it will have on the property market.

Interest rates as an economic guide is the roughest of financial levers – pull them too low and you risk the superannuation of retirees and drag investors towards riskier higher-yield investments. Low interest rates are also associated with overheated markets, ‘property bubbles’ and first home buyers competing against seasoned property investors in the race for ownership. Force interest rates too high and the most mortgage-stressed of our community begin to lose our homes, property values slow and retail suffers. Last month’s (relatively) unexpected rate cut pushed our national cash rate to an all-time low of 2.25% from 2.5%, and since then data on the economic effect of this decision by the RBA has been mixed. In short, the RBA have decided not to move rates up or down until the full impact by this further rate cut filters through to the economy.

Tuesday’s March meeting note express that it is ‘appropriate to hold interest rates steady for the time being’ and that ‘further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target.’ Other key messages in the latest RBA announcement include the observation that global growth continues to be moderate, and markets accommodative, but that Australian growth is below pace and that unemployment has increased in the past year. When it comes to credit (read: loans), we are experiencing moderate growth with investors particularly sweet on property. Dwelling prices have continued to grow in areas of strong demand – which includes Melbourne and suburban areas such as St Kilda, Elwood, Port Melbourne and bayside regions more generally. Your takeaway from the March 2015 RBA announcement? If you can acquire property now (courtesy of lower rates and increased value of assets you might already hold), do so.