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Further rate movements uncertain

By Staff Reporter
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While responses to the unchanged interest rate yesterday have been varied, it’s clear that most are unclear about where rates will be heading in the future.

General manager of CUA, Jason Murray, told Smart Property Investment that he was “not surprised” by the Reserve Bank’s announcement yesterday that rates would stay on hold at three per cent. Consumer perspective was similar, with a recent CUA survey seeing 53 per cent of consumers expecting it to be on hold.

Looking at the next few months, it’s uncertain ground about whether rates will be cut further.

While AMP Capital’s chief economist, Shane Oliver, has previously said he expects another two rate cuts (bring us down to 2.5 per cent) due to uninspiring data coming in, Mr Murray wasn’t so sure.

“The challenge for the RBA is that a lot of people are just paying off their mortgages faster rather than stimulating the economy by spending,” Mr Murray said.

“It won’t have the desired effect. You get to the point where cuts start to have a negative impact as much as a positive impact when it gets lower than where it is, as those that are saving become affected.

“Experts are still talking about one or two more [rate changes], but as a keen observer I’d say the impact of another rate change has become less and less,” he said.

Real Estate Institute of Australia president, Peter Bushby, agreed that the response to rate changes has been questionable.

“The impact of last year’s cuts is still not clear but with the market remaining relatively flat, potential homebuyers will always love to see interest rates go down,” said Mr Bushby.

“If the RBA had further cut the rate by 25 basis points and the lenders had passed on the cut, affordability would have improved with the proportion of family income required to meet loan repayments dropping to 29.9 per cent compared to 31.8 per cent recorded in the September 2012 quarter,” he said.

The RBA’s meeting yesterday saw the board announce that the global economy’s “downside risks” appear to have abated presently, with signs recently of stabilisation.

Even despite the recognition of the peak in resource investment approaching, “there will be more scope for some other areas of demand to strengthen.”

Residential property, with dwelling prices moving slightly higher, rental yields increasing and building approvals up, also contributed to the decision not to cut.

“The board's view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate,” the announcement continued.

“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.”

A Mortgage Choice franchise owner, Aurelio Tenaglia, said that this should be seen as a ‘glass half-full’ by mortgage holders.

“Further rate cuts are expected in the coming months but for now borrowers shouldn’t lose sight of the fact that rates are at a historical low and this is good news for anyone looking to enter the property market,” Mr Tenaglia said.

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