Hold Your Horses: Melbourne Cup Day Sees Cash Rate Remain On Hold at 2%

Despite considerable speculation surrounding a further rate cut from the RBA at its November board meeting, they have decided to keep rates on hold for a sixth consecutive month. Today, C&G unpack the latest announcement and how it may impact upon the economy and our property market. 

For the sixth month in a row, Governor Glenn Stevens has announced that the cash rate will remain on hold at 2%. The rate hold came as somewhat of a surprise, as a further rate cut was dubbed ‘likely’ by almost half of analysts. 

Stevens acknowledged that further easing was predicted, and established that conditions were beginning to lead in such a direction, noting that “the outlook for inflation may afford scope to further easing of policy” – which is likely a head-nod to the recent surprise drop in inflation. The board perceive holding the cash rate steady to be the most appropriate decision at this stage, with low interest rates supporting borrowing and spending. Stevens branded the conditions ‘accommodative’ of increased spending in spite of the lack of support from major banks, with rates being hiked up by the ‘Big Four’.

In terms of the property market, increased rates for buyers are taking a little of the heat off booming markets in Melbourne and Sydney – with a noted improvement in the level of owner-occupiers against investment buyers. As a result of APRA’s restrictions on lending to investors, credit growth has increased a little in recent months. 

With another month of stasis to come, pundits are leaning more towards a rate cut in the coming months – but the question remains as to whether it will come as a Christmas present to stimulate retail spending, or whether the board will hold off until the New Year in a bid to feed the January slump. The out-of-cycle rate increases from the Big Four banks further enhances the call for a rate cut, in an attempt to balance out the tightening.

If you’re on the fence about property decisions, the current rates remain favourable for owner-occupiers, with the impending rate cut doing little to dampen conditions. The lack of support from banks in the RBA’s attempt to stimulate spending raises the question as to whether a further rate cut would lead to mortgage rates increasing again, though -  as the Governor noted - the market still remains accommodative of borrowing. With summer and the New Year just around the corner, the property market’s busiest time is imminent – rate cut or otherwise. The demand for rentals and sales improves dramatically in wake of the New Year, so don’t be put off by the fluctuating conditions. Speak with your broker about how the rates may affect your situation – and Chisholm & Gamon are of course always on hand for assistance with properties in the Bayside area.