Reserve Bank announces no cuts in cash rate in 2017 meeting

By @shauryaarya1 on
Reserve Bank of Australia
An office worker walks past the Reserve Bank of Australia (RBA) building in central Sydney, Australia, March 1, 2016. Reuters/David Gray

The Reserve Bank of Australia has kept the official cash rate on hold at 1.5 percent in its first meeting of this year. The move, which had been anticipated, comes on the heels of rates being slashed twice last year.

In May, the rates were cut down to 1.75 percent. They were further brought down, reaching a historic low, in August.

“Conditions in the housing market vary considerably around the country,” RBA Governor Philip Lowe said. “In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.”

The decision to keep the official cash rate on hold was not met with much surprise. A survey conducted by comparison website Finder.com.au found more than half the participating experts and economists felt the cash rate had reached its lowest this cycle. Insights Manager Graham Cooke said nearly 80 percent of the respondents believed there was more than the required supply of apartments in Australia – with Melbourne being the most affected.

With the latest decision, RBA has left rates on hold for five consecutive meetings. According to AAP (via Yahoo 7), Lowe acknowledged a slower growth in the September quarter. At the same time, he said reasonable growth will likely return in the December quarter.

CoreLogic head of research Tim Lawless attributed the unchanged cash rate to the housing market. “With inflation consistently tracking below the RBA’s target range for almost three years, it’s likely that the heat in the housing market is one of the primary reasons why the cash rate hasn’t moved lower in an attempt to stimulate spending and push inflation higher,” he said.

Values of the capital city housing have increased by 10.7 percent in the last year. This comes as a significant escalation over a growth rate of 7.4 percent witnessed in the previous period.

Financial comparison website Canstar found the current average standard variable home loan rate was 4.45 percent. For investors, the number stands at 4.71 percent. “If they did [cut rates], one would have to question how much would be passed on to borrowers in any event,” Canstar chief finance commentator Steve Mickenbecker said. “During the last move the banks handed on half and with out-of-cycle increases since, even that half has been severely eroded.”