As widely expected, the May RBA Board meeting saw Australia’s central bank leave interest rates on hold for 19 meetings or 21 months - a record period of monetary policy immobility.
In doing so, it made little change to its post-meeting statement, except to acknowledge the tightening in the US and Australian money markets. Other factors prompting the RBA to leave rates on hold include the higher oil prices, a lower Australian dollar and the expectation of improved economic growth above 3%, according to leading economist, Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital.
While the global backdrop, business conditions, non-mining investment, and infrastructure activity are favourable, noted Shane, and will lead to an acceleration in economic growth, which is fabulous news for real estate, some uncertainty remains. She explained, "The outlook for consumer spending and household debt is high, [while] banks are tightening lending standards." Other factors of concern include low wage growth and low inflation and flatter house prices in some markets. As a result, the RBA is likely to keep interest rates on hold at least until 2020 at the earliest, noted Shane.
However, continuing low-interest rates is sure to be good news for those Australian capital city markets that are starting to turn the corner such as Perth and Darwin, argued Angus Raine, Executive Chairman, Raine & Horne. “Low-interest rates don’t just allow first home buyers to borrow more to buy and build new properties – upgraders, investors and lifestyle buyers can afford to spend more on established or holiday homes as well. The combined demand of buyers and investors will push prices up in Darwin and Perth as it did in Sydney and Melbourne half a decade ago.”
In the current low-interest environment, it’s also fair to expect that older investors with self-managed super funds will continue to seek higher-yielding asset classes such as residential and commercial real estate, noted Angus.