RBA Leave Official Cash Rate on hold at 1.5%

The Reserve Bank of Australia has kept the official cash at 1.5% at its final meeting of the year, marking the 16th month in a row that the central bank has left interest rates on hold.

There were a number of key drivers which the RBA board cited in its’ reasoning behind the decision, which included concerns around wage growth and employment as well as lower than expected inflation. The RBA board were also concerned about a cooling housing market, particularly in Sydney and Melbourne, which many economists believe will keep rates on hold for the foreseeable future.

AMP Capital chief economist Dr Shane Oliver said the RBA would likely keep rates on hold until a probable hike late next year at the earliest.

“While strong business conditions, solid jobs growth, improving global growth and the RBA’s own forecasts for a pickup in growth argue for an eventual rate hike, ongoing low inflation, record low wages growth, uncertainty around consumer spending, signs that the housing cycle is slowing and the still strong Australian dollar argue against a rate hike,” he said in a note this week.

 

Much of the softening of southern markets could be linked to a government crackdown on risky lending practices, the results of which have seen the number of interest only housing loans fall again in the September quarter.

Dr Oliver went on to say the Sydney and Melbourne property boom was “continuing to fade” due to higher interest rates for investors and interest-only borrowers, rising supply and weakening expectations.

“Our view remains that average residential property prices in Sydney and, with a lag, Melbourne will fall 5 to 10 per cent into 2019,” he said.

“Perth is bottoming and should start to see moderate price gains by 2019, with Darwin following too. Brisbane, Adelaide and Canberra are likely to see continuing moderate gains over the next few years with some acceleration possible and Hobart will remain strong.”

 

This was reflected in a statement released by the board following the announcement.

“Nationwide measures of housing prices are little changed over the past six months, with conditions having eased in Sydney,” the RBA statement said.