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Reserve Holds Interest Rates as Property Values Cause Jitters

21 Feb 2011 Coomera 0 Comment

Michael Bennet , The Australian, April 01, 2014

THE Reserve Bank of Australia has held the key cash rate at a record low for the seventh straight meeting, determined to continue to prop up the non-mining economy despite growing uneasiness about a surging property market.

As widely expected, the RBA today left the cash rate at 2.5 per cent amid a growing belief among economists the central bank may not move rates again until mid to late next year, when a hike may be in order to offset rising inflation and cool the hot housing market.

RBA Governor Glenn Stevens reiterated there would “likely to be a period of stability in interest rates”. The Australian dollar spiked above US93c directly after the RBA’s decision at 2:30pm (AEDT), before cooling back to around US92.70c.

“The main implication of another ‘on hold’ rates decision is that people can get on with their lives rather than constantly worrying about borrowing costs or the best place to put new investments,” said CommSec economist Craig James.

“The RBA believes there is no convincing case to be made for moving interest rates in either direction.

“(But) The RBA certainly seems to be voicing more caution when it comes to house prices. And with good reason. Look around Australia — and frothy price growth in Sydney seems to be bubbling out to other capital cities and with rates likely to remain an ultra-stimulatory levels over the next few months, strong price growth is likely to be the norm. The key will be how supply responds over the medium term.”

Mr Stevens said credit growth was “slowly” picking up and noted the “significant” increase in house prices over the past year.

He added the recent surge in the dollar would hinder the economy achieving more “balanced growth” and again labelled it “high by historical standards”.

House prices also continued their march higher last month, rising a record 2.3 per cent month on month, RPData said today. House prices are up 10.6 per cent in the past year, led by a 15.6 per cent gain in Sydney.

“Overall, the housing market continues to strengthen further to ‘boom-like’ conditions,” UBS economists said prior to the RBA’s meeting today, adding the central bank would be getting a “bit nervous” about how long it can keep the cash rate this low.

 


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