C&G: RBA August Interest Rate Announcement

Happy Birthday, cash rate! August’s RBA announcement marks the 1-year anniversary of our historic interest rate low, which remains at 2.50%. This ongoing period of stability was predicted by most market commentators to continue, with current stasis likely to continue throughout 2014. According to the Reserve Bank Governor Glenn Stevens, "In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates." In what is best described as an extended ‘wait and see’ moment, the RBA are closely observing how such lowered interest rates over a period of time filter through to bolster economic results. In relation to the property market, confidence has certainly returned with auction clearance rates in Victoria routinely over 70%. Some critics suggest that the lowered rates have done their job - bringing energy and confidence back to consumers who have returned to both retail and property investment with vigour – and that rates should begin their way upwards again now.

Reticence to do so on the RBA’s behalf may be due to ongoing price pressures on the whole community despite weak wage growth. Nick Hutley from Urbis notes that ‘employment is making small but steady improvements, business confidence is picking up and inflation is trending higher. However, consumers still remain a little wary of the impact of the Federal Budget and mining investment is coming off increasingly quickly.” Finder.com.au reports that 17 of 20 finance experts surveyed expect the cash rate to rise in 2015 – meaning that property purchasers should not forget to leave budget leeway amidst their enthusiasm take advantage of such low cash rates. Many home owners may find themselves (pleasantly!) ahead on their mortgages, having continued paying at a higher rate even as interest rates have gone down. Investors with multiple properties should take this time to ensure they can bear the cash rate making its inexorable way upwards, leading to substantially heftier payments each month if not on a fixed interest rate. Might it be time to review your rental income to see if additional income is due? Now is also an opportune time to buy property whilst taking advantage of low fixed-rate mortgage terms -  be sure to consult with a trusted financial advisor and local Chisholm & Gamon property expert to ensure you are buying premium property that will both appreciate and offer you strong rental income.