Woah, Nelly: C&G on August’s RBA Announcement

Market Updates

In Tuesday’s meeting, the RBA announced that the cash rate would remain at the all-time low of 2%, as widely anticipated. What does this mean, for existing homeowners and those looking to purchase? Today, C&G discusses the likely consequences of the announcement and how it will affect the property market locally and nationally. 

Financial experts had almost universally predicted that there would likely not be another rate cut, and that the cash rate would remain at 2%. At Tuesday’s meeting, expectations were confirmed when Governor Glenn Stevens’ media release went live. Experts justified their predictions by the lack of evidence to suggest that an increase or another cut would be beneficial at this time, and given the Australian dollar’s support to exporting and importing imposed businesses. AMP Capital chief economist Shane Oliver noted that “there hasn’t been any major transformations since the last meeting”, which was echoed by other industry experts.

The key progression in Glenn Stevens’ statement from July to August’s rate hold was his statement that “the Australian dollar is adjusting to the significant decline in key commodity prices”, and that there is no longer a need for further depreciation. Stevens outlined that low commodity prices - supported by long-term low interest rates - impacted upon his decision to hold rates steady. It is suspected that the RBA are waiting for business and consumer confidence to improve. The AUD grew stronger immediately following the RBA announcement, reaching US73.80c.

It appears that the RBA have adopted a ‘watch and wait’ approach to the rate assessment, to see whether the economy lifts. Similarly, the outcome of the APRA’s tightening of the regulations surrounding property investment lending may impact on the future decisions. The big banks have increased their property loan rates in order to “take the heat off” of the East Coast market, particularly in Sydney, according to RateCity’s analyst, Peter Arnold.

In terms of what the rate hold means for property owners and first time buyers, Chisholm and Gamon agree that it is a good time to be in the property market. Rates are still at all-time lows and steady economic growth is widely predicted. While the increased lending rates are suspected to be imposed on existing lendees as well as newcomers, regulations are being called for to target the specific areas so as not to impact on the country as a whole, say PIPA (Property Investment Professionals of Australia).

The Bayside area remains a strong area to own or invest, with high demand due to good schools and transport links. With the summer coming, the southside is becoming increasingly popular, and our key suburbs including Elwood, Black Rock, St Kilda, Port Melbourne and Mount Martha are still ideal investments, absorbing a strong rental market and an amenity-rich location.

C&G would advise discussions with your broker sooner rather than later, as further rate increases are predicted – act now while rates a low and competition is high.