The Reserve Bank of Australia at their August meeting last week kept the official cash rate on hold. It had last cut the cash rate to its record low of 1.5% in Aug’16, after an earlier cut to 1.75% in May’16. There has not been an official cash rate increase since Nov’10. And this constant rate of 1.5% for 2 consecutive years now has been the longest period of no change from RBA, till date.
As per the RBA governor Philip Lowe, the conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. The steady rate setting has a lot to do with low inflation, record high household debt, stagnant wages and more recently, falling dwelling values. Experts believe the cash rate will remain on hold until at least January 2020.
Treasurer Scott Morrison stated that the overheated housing markets in the two big eastern capital cities had needed the intervention of the banking regulator APRA. “This has been a necessary cooling in those markets because it was putting enormous pressure on the level of household debt, which was actually risking our AAA credit rating,” he said. He said rising household debt had been singled out as a concern by the ratings agency analysts, adding that APRA’s tightening of bank lending standards on investor housing had been “the most calibrated intervention you could imagine”.
The RBA’s central forecast for the Australian economy remains unchanged. GDP growth is expected to average a bit above 3 per cent in 2018 and 2019. A number of major banks have recently downgraded their forecasts for the Australian housing market. NAB predicts house prices will flatten in 2020, with a peak-to-trough fall of 6.5 per cent in Sydney and 2.5 per cent in Melbourne. ANZ said it expects to see peak-to-trough declines of about 10 per cent in both Sydney and Melbourne in the same period.
It would be wise to see that with global worries mounting, will this strengthen this move help stabilize and strengthen the economy.
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