RBA rings alarm on high debt levels
Risks to financial stability could be building as house prices and debt levels keep rising, the Reserve Bank has caution...
While the Reserve Bank (RBA) is holding tight this month, the current environment doesn’t rule out the prospect of future rate cuts, according to Mortgage Choice.
Mortgage Choice spokesperson Belinda Williamson said that we may find ourselves with a double header in August, with the possibility of both a federal government election and a cash rate cut on the cards.
“The Reserve Bank stated in its last meeting that there is still room to move the cash rate should the need arise,” she said. “At the same time, there is a common view that the Reserve Bank will make at least one further cut this year, with the odds on an August cash rate cut.”
Ms Williamson said there are indications of an improving outlook for the Australian economy, which the RBA would have taken into consideration.
“The strength of the Australian dollar has lessened recently and this is expected to have a positive impact on parts of the economy, once the effect trickles through. Specifically, the impact should be felt in the non-mining sectors such as retail, manufacturing and tourism, which in turn will likely drive local employment,” Ms Williamson said.
Meanwhile, the Housing Industry Association (HIA) says the decision to keep the cash rate on hold at 2.75 per cent reduces the potential for residential building activity to support the economy.
HIA senior economist Shane Garrett said, "The RBA had the option to reduce rates and deliver badly needed support to businesses and households. By failing to move, the weaknesses in the residential construction industry will merely be prolonged."
Outside of the mining sector, growth in other sectors of the economy is quite weak, Mr Garrett said.
“This includes residential construction, where activity is at its lowest in almost a decade. Lower interest rates are badly needed to help place the industry on a sustainable growth path and to give businesses a bit of breathing space in terms of interest costs," he said.
"Our economy needs a strong residential building sector to substitute for declining construction activity in the mining sector."