Borrowing money

The Reserve Bank keeps its exchange rate stable in August

At its meeting today, the RBA announced that it would make no further changes to the already record cash rate this month, following cuts of 25 basis points from June and July.

The move is not unexpected, with markets pricing the possibility of a cash rate cut to just 17%, while all economists polled by Bloomberg expected the cash rate to hold.

In his accompanying statement, Reserve Bank Governor Philip Lowe hinted at the possibility of future rate cuts, which already predicted by many economists.

“It is reasonable to expect that a prolonged period of low interest rates will be needed in Australia to make progress in reducing unemployment and making more assured progress towards the inflation target,” he said. he declared.

“The Board will continue to closely monitor labor market developments and further ease monetary policy if necessary to support sustainable growth in the economy and achievement of the inflation target over time.”

Mr Lowe also said the central scenario for Australia’s economy was to grow around 2.5% in 2019 and 2.75% in 2020.

“The outlook is supported by low interest rates, recent tax cuts, continued infrastructure spending, signs of stabilization in some housing markets and a brighter outlook for the resource sector. “

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Housing market benefits from lower interest rates

CoreLogic’s head of research Tim Lawless said the lack of a cut this month gives the RBA time “to assess the effects of past rate cuts” on the economy and consumer spending. .

“The housing market was one of the main beneficiaries of lower mortgage rates, with the trend of stability in the first half of the year turning into a slight increase in house values ​​in the capital in July. “said Mr. Lawless.

“The improving housing market trends cannot be entirely attributed to lower interest rates, there has also been the added stimulus of looser assessments of mortgage repayment capacity…as well as the injection of confidence after the federal election and tax cuts for low-income people. ”

Mr Lawless also said the housing market should enter a gradual recovery, with mortgage rates expected to remain low.

“However, with credit policies that remain tight and economic uncertainty still elevated, we do not expect a significant acceleration in real estate activity or home values.”

Mortgage Choice chief executive Susan Mitchell agreed, saying a third cut so soon would not give policymakers an idea whether the cuts were having a marked effect on the economy.

“The Reserve Bank’s decision to keep the exchange rate stable this month was prudent,” Ms Mitchell said.

“As financial markets expect another 25 basis point cut this year, the important thing to keep in mind for borrowers and future borrowers is that interest rates are currently at low levels. historically low.”

CoreLogic Home Value Index for July National house values ​​revealed had stabilized in five of the eight capitals, with Sydney and Melbourne reporting overall increases of 0.2%.

Source: CoreLogic Hedonic Home Value Index, July 2019 results

Changing the property value