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Rates on hold

By Jessica Darnbrough
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The Reserve Bank of Australia has taken a “wait and see approach” to rates, leaving the official cash rate on hold for the second consecutive month.

Earlier today, the Board decided it was prudent to leave the cash rate on hold at 3.5 per cent for another month to see what effect the rate cuts made earlier in the year will have on the property market.

The decision comes just one week after the Australian Bureau of Statistics revealed Australia’s inflation figure was now just outside of the RBA’s target range – sitting at 1.9 per cent.

But while inflation was lower than expected, economists still expected the RBA to leave the cash rate on hold when the Board met in August given that house prices have climbed for the last two consecutive months.

“The Reserve Bank would have been very cognisant of the fact that capital city home values have seen two consecutive months of capital gains in June and July providing some further evidence that Australian consumers are starting to respond to lower interest rates,” RP Data’s research director Tim Lawless said.

“The Bank is likely to be increasingly vigilant not to overstimulate the housing market which is likely to be one of the reasons behind their decision to keep interest rates on hold.  Most of the housing market indicators are now pointing in a positive direction. 

“Since the start of the year RP Data has been seeing a reduction in total stock levels, clearance rates have improved, homes are taking a shorter number of days to sell and vendors are discounting their initial asking prices less.  All these factors, together with the turnaround in value declines is point to a stabilising housing market and less of a requirement for lower interest rates.”

Mr Lawless’ comments were echoed by Loan Market Group’s spokesperson Paul Smith who said the 75 basis point reduction in the cash rate over May and June was yet to have a substantial impact on consumer sentiment.

“The market is still adjusting to rate cuts in May/June and it appears the RBA would rather keep some ammunition up its sleeve to combat any further deterioration of the economy than try and stimulate the present lagging data sets,” he said.

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