Interest rates stay on hold

Interest rates stay on hold

Posted on Tuesday, July 01 2014 at 2:49 PM

Investors and homeowners can continue to enjoy historically low interest rates for now, with the Reserve Bank of Australia (RBA) leaving the cash rate on hold at 2.5 per cent.

RP Data research director Tim Lawless says the decision comes as no
surprise, with the housing market cooling.

“Australia’s housing market has seen two years of escalating property
values, so from a cyclical perspective the housing market is due for a
slowdown,” he says.

“Gross rental yields in both these cities have fallen to near historic
lows as value growth has substantially outpaced rental growth. With the heat potentially
coming out of the housing market, the RBA will find it much easier to keep
interest rates at their low setting in an effort to continue stimulating
housing construction and consumer spending. Add to the recently weak housing
market a stubbornly high Australian dollar, lower commodity prices, slowing
dwelling approvals and weaker consumer sentiment post Federal Budget and it’s
clear that the RBA is likely to hold off on rate hikes for the foreseeable
future,” Lawless says.

Mortgage Choice spokesperson Jessica Darnbrough believes the drop in
consumer confidence also encouraged the RBA to leave rates on hold.

“The latest Westpac Melbourne
Institute Index of Consumer Sentiment
fell by 6.8 per cent to 92.9 – the
lowest level since August 2011,” she says.

“According to the Index, 59.2 per cent of Australians said they would
expect their family finances to worsen over the coming 12 months as a result of
the Federal Budget.”

She adds the drop in consumer confidence means rates could stay on hold
for some time. However, Real Estate Institute of New South Wales president
Malcolm Gunning is warning investors to consider locking in their interest
rates if they’re worried about future rises.

“The run of historically low interest rates will come to an end and we
encourage those who are thinking of entering the property market to factor this
into their budgets,” he says.

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