Official rates left on hold by upbeat RBA

NOVEMBER 21, 2018

Official rates left on hold by upbeat RBA

This week's decision by the RBA Board to leave official interest rates on hold at the historic low of 1.5% was widely anticipated.

This decision marks the 25th time in a row Australia's central bank has resolved to leave rates on hold.

What was less anticipated by commentators was the RBA’s more positive prognostications on growth, led by GDP with a growth prediction of 3.5% this year and next (which is up by around 0.25% compared to its previous forecasts), noted leading economic commentator Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital. He added, “[The RBA] now sees unemployment falling to around 4.75% in 2020 (which is down by around 0.25%) and it sees inflation moving above its previous forecast of 2.25% in 2020.”

“Right now, the RBA likely feels comfortable in its assessment that while there is no case to change monetary policy at present that the next move on interest rates is more likely to be up than down,” said Shane. “This also remains our base case, although we don’t see a rate hike until late 2020 at the earliest.”

Interestingly, the RBA’s decision to leave the cash rate on hold means it is now eight years since the last cash rate hike in November 2010. In November 2010 the average discounted variable rate was 7.15%, according to comparison website, RateCity. Today it is 4.65%. As a result, the average Australian is paying approximately $52 less in loan repayments each month, based on a 30-year loan.”

Angus Raine, Executive Chairman, Raine & Horne said, “The decision by the RBA is based on better signs for the economy and with interest rates remaining at record lows, the time is ripe for first home buyers across Australia to consider jumping off the rental treadmill and into a property of their own.

“In fact, we are seeing stronger first home buyer numbers already across many markets in Australia as a consequence of the prospect of continuing lower interest rates, fewer investors and plateauing market conditions.”

Given the state of some property markets, higher first-time buyer activity, along with the rigorous prudential blowtorch currently being applied to property investors, calls for changes to negative gearing are redundant, noted Angus. “Real estate is a favourite investment asset of many Australians. The market is doing its job, and we now have more normal conditions across Australia.

"There’s just no good reason why some politicians need to tamper with our favourite asset class and potentially costs hundreds of thousands of hardworking Australians billions of dollars in losses cumulatively."

To discuss the value of a negatively geared investment property, contact your nearest Raine & Horne office today or visit our website at www.rh.com.au.