RBA cash rate decision and what’s next?
At its meeting today, RBA decided to leave the cash rate unchanged at 1.50%. The board believed that holding the stance of monetary policy unchanged today would help with sustainable growth in the economy and achieving the inflation target over time.
The Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
Why did the RBA decide to leave the cash rate unchanged?
- Although uncertainties remain, the global economy has picked up since last year. Forecast for global growth have been revised up
- Headline inflation rates have moved higher. Core inflation remain low
- Growth is expected to increase gradually over the next couple of years to a little above 3 per cent. The economy is continuing its transition following the end of the mining investment boom. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom
- Indicators of the labour market remain mixed. The unemployment rate has moved a little higher over recent months, but employment growth has been a little stronger
- Lenders have announced increases in mortgage rates, particularly those paid by investors and on interest-only loan
- Inflation picked up to above 2 per cent in the March quarter in line with the Bank’s expectations
- The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness
What does all this mean to existing and future borrowers?
- Borrowers with interest only repayments will most likely experience more rate hikes due to supervisory measures
- Apartments prices in the eastern capital cities such as Brisbane, Melbourne, and Sydney will be impacted due to additional supply of apartments in the pipeline over the next couple of years
- To further curb demand, banks might limit loan to value ratios (LVR’s) and tighten their lending policies
However, there could be much more interesting news in the coming weeks for First Home Buyers in the 2017-2018 budget.