C&G on the October RBA Announcement

Market Updates

Surprise, surprise – it’s the announcement that everyone saw coming. On the 7th of October, the Reserve Bank of Australia made its monthly statement and has - for the 14th consecutive month - left the national cash rate on hold at 2.5%. The historically low interest rate remains in place to “foster sustainable growth in demand and inflation outcomes”. With the unprecedented longevity of this cash rate low, C&G takes a look at what this latest announcement means for the property sector.

Better hunker down! According to JP Morgan economist Ben Jarman, an increase in the interest rate is “likely still a way off”, with financial commentators in accord that our current cash rate will remain as-is into 2015. Michelle Hutchinson of Finder.com.au suggests that we won’t see an increase in rates for possibly the next 12 months or even into 2016. Investors – make hay while the sun shines! The property market locally is enjoying strong clearance rates, and the time is now to achieve outstanding sale results. 

There has been some concern from the RBA around supposedly inflated property prices, and speculation that the industry body may introduce “macro-prudential” measures to dampen a perceived trend of high-risk lending instead of increasing the cash rate. On a similar note, the RBA’s assistant governor for financial systems Malcolm Edey told a parliamentary committee “that an emphasis on increasing the supply of housing was needed to slow price increases”. Where these residences might be built and whether they might be subsidised by the government itself is not clear. What is clear, however, is that the demand for property in areas well-serviced by transport and amenities remains high. These suburbs aren’t becoming geographically larger, and the rarity of possessing property in these desirable areas makes the inner-urban and bayside areas a solid investment prospect for the future. As Melbourne continues to grow, housing remains at a premium across both the owner-occupier and leasing markets. Our national cash rate remaining low serves to entice more investors into the property market ‘while the going’s good’.