Stuck on You – RBA Holds Cash Rate at 2%

As widely expected, the RBA have announced that the cash rate will remain at the all time low of 2% for another month. Left unchanged since May, speculation around the ongoing impact of ultra-low rates on the Australian housing market has been furious. Today, C&G explore the motivation behind the latest rate announcement – and what it means for property owners and aspiring investors. 

Reserve Bank of Australia Governor Glenn Stevens announced today that the cash rate is to remain at 2% - a decision universally anticipated among media pundits. With little change since the August statement, the debate continues as to whether a further rate cut is imminent continues. Despite sluggish economic growth, there is no indication that a further cash rate cut will eventuate.

 Governor Stevens explained that he expects inflation to stay in line with targets, while the economy is likely to operate with a degree of spare capacity for quite some time. Unemployment rates have remained steady over the past year, with little improvement or decline.

The most notable change in the September statement is the removal of the requirement for the Australian Dollar to depreciate further. With interest rates at an all time low, exchange rates are following – adjusting to the decline in commodity prices. The benefits of such a fall will follow shortly, as robust retail spending is anticipated. In line with the recent decline in value of the AUD, exports of iron ore have risen by 5%.

Tomorrow the June quarter national accounts will be released, and speculation around the growth or contraction of GDP - attributable to both a rise in public sector spending and a sizeable decline in corporate profits – supports the requirement for the RBA to act. A fall in GDP could encourage a further cash rate cut in the coming months to encourage spending.

The release of the June quarter accounts - coupled with the actions of the US Federal Reserve on interest rates - will pave the way for the movement of the cash rate in the coming months. The result of APRA’s changes to investor lending are also cause for a ‘watch-and-wait’ approach from the RBA before further rate cuts are considered.

With interest rates still at all-time lows and global financial conditions remaining accommodative, it is still a fine time for property investment. With increasing demand for residential property, C&G welcome your call to discuss the current bayside property climate and your circumstances as a buyer or seller.