THE Reserve Bank has left the official cash rate on hold this afternoon, despite a volatile Australian dollar, sluggish mining transition and mounting global pressures to cut.
After slashing the cash rate to a historic low of 1.5 per cent in August, the second interest rate cut this year, the decision to keep the rate steady was widely anticipated.
New Reserve Bank governor Philip Lowe, who presided over his first meeting of the bank’s board on Tuesday afternoon, voiced his optimism about Australia’s economic outlook in the lead-up to the decision, heralding an end of the downturn in resources sector investment and stronger export prices to improve employment figures over the next twelve months.
Dr Lowe is expected to show continuity with his predecessor’s approach, with the central bank in a wait-and-see mode to assess the impact of rate cuts it made in May and August.
Economists were unanimous in forecasting the rates hold decision, according to a survey of 33 economists by finder.com.
While some still expect a further rate cut this year, others are predicting the RBA could hold out longer.
A surprise announcement last week by OPEC, the world’s key oil cartel, that it would cut production for the first time in eight years pushed the Australian dollar to a three-week high, fuelling inflation concerns.
‘AN EVENTFUL MONTH’
Peter Arnold, data insights director at RateCity.com.au, said Australia’s GDP was growing and, domestically, iron ore prices had continued their winning streak.
“Australia’s economy grew by 3.3 per cent over the year to June, notching up 100 quarters without a recession,” he said.
While a sluggish mining transition and pressure from neighbouring countries like Japan had weighed in favour of a cut, Mr Arnold said, the hold decision was in line with expectations.
“It’s been an eventful month. The US Federal Reserve left its rates on hold in September, the first US Presidential debate took place on Tuesday, and the OPEC oil agreement could spell the end for lower petrol prices, making investors nervous,” he said.
“Housing is another interesting indicator this month. While prices are still high in Sydney, we’ve now seen a drop in mortgage approvals, which is a sign the market might be coming off the boil.”
HOUSING MARKET COOLS
LJ Hooker chief executive Grant Harrod said the impact of cash rate changes on the property market was beginning to wane, with the number of properties for sale remaining uncharacteristically low in 2016.
“The market has been exposed to an extended period of quantitative easing, but it’s not inspiring property owners to sell,” said Mr Harrod. “It’s more likely to be major markets such as Sydney approaching their peak in growth which will force their hand.
“Five to 10 years ago, if you asked the marketplace what would be the biggest influence on their real estate decision, interest rates would have been the answer. But after an extended period of low rates, interest rates have become less persuasive.’’
The latest ABS figures showed Sydney residential prices rose 3.6 per cent for the year to June, a rate of growth that pales in comparison to the city’s 2014-15 June result when prices rose 18.9 per cent, and put it behind Melbourne (8.2 per cent), Canberra (6 per cent), Hobart (4.9 per cent) and Brisbane (4.3 per cent).
Overall, the weighted index for the eight capital cities rose 4.1 per cent in the year to June. In comparison, the previous 12 months recorded 9.8 per cent across the capital cities.
Mr Harrod said the nation was operating on a multi-tiered pace, pointing to Perth, which had more stock currently available than Sydney.
“At the RBA’s September meeting, it pointed to signs of a cooling in the market. There has been an increase in properties come to the market this spring selling season, and that will likely soften further growth as demand is satisfied,’’ said Mr Harrod.
“If sellers are motivated, the indicators show we’re nearing the top of the peak — sitting on hands could prove to be costly. Buyers are very smart and vendors have to measure their expectations or else they will spend an extended period on the market.’’
NOVEMBER CUT POSSIBLE
Mr Harrod said the RBA’s November 1 meeting, which falls on Melbourne Cup Day, was a popular time for the central bank to shift rates, with their gathering coinciding with the release of the latest inflation data.
Of the 33 experts surveyed by finder.com.au, one-third predict that the cash rate will plummet before the year closes, while a quarter have forecast a November cut.
Some 69 per cent believe the cash rate won’t fall lower than 1.25 per cent this cycle, while 24 per cent expect it to bottom-out at 1 per cent.
When asked whether home loan providers should start offering competitive, longer term fixed rate mortgages, 27 per cent said lenders should provide longer fixed-term products.
Over half believe slow rental market growth could affect housing prices, with many citing falling rental yields as making housing less viable for investors.