After a 2 month summer break, the RBA has kept interest rates on hold at 1.5 per cent. In recent times the RBA has maintained a fairly optimistic view on the economy, however they did note in the post-meeting statement that “downside risks” have increased.
Today’s meeting confirmed that the RBA hasn’t changed course, maintaining the key line that “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”, which has featured in its statements over the last year.
The RBA’s positive outlook has persisted despite weak inflation, falling house prices, a weakening construction sector, soft consumer spending and growing risks to global growth.
Inflation remains weak
Ongoing weak inflation has kept the RBA from increasing the cash rate. Underlying inflation (excluding volatile price movements) has been below 2 per cent for the past 3 years. The Consumer Price Index result for the 2018 December quarter was slightly above expectations but it was still a soft result.
Real Estate prices, lending and the impact of the financial services royal commission
Property prices have continued to fall towards at the end of 2018. The RBA has not expressed concern about property price falls as yet, stating that “the housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices”. But if price falls continue and impact on spending by households, the RBA may have to consider cutting rates.
The home lending recommendations in the financial services royal commission final report were more modest than expected. Banks tightened their lending standards in 2018 in response to APRA interventions and in anticipation of the Royal Commission recommending stricter lending standards. These tighter lending standards may be considered the “new normal”.
Weaker economic data
Since the previous RBA meeting in December, the financial markets now believe it is likely the RBA will cut the cash rate, a stark turnaround from six months ago when the expected next move was to be a rise. Weak economic data contributed to this change in expectations.
What next?
Weaker economic data and growing risks to Australia’s economic outlook didn’t change the RBA’s language about the future path of interest rates. The RBA is likely to keep the cash rate at 1.5 per cent until at least mid-2019.
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By Wendy Chamberlain
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With a passion for all things real estate spanning over 20 years, Wendy loves that her role as a Buyers Agent and Sellers Advocate gives her buying and selling clients an experienced voice they can trust when it comes to negotiating to buy or sell something as important as their home or investment. Wendy considers it a privilege to be asked to help others realise such an important goal as home ownership and to be trusted with that honour. Get in touch today via www.chamberlainadvocates.com.au for a no obligation chat about how Wendy can work with you and help you save time and money to secure your new home sooner.
