RBA Announce Cash Rate Decision for April 2014

The Reserve Bank of Australia has kept the official cash rate on for April confirming at 2.50%p.a for the eighth month in a row. In arguably the only news that was guaranteed this April Fools Day, the RBA Board has announced that it has retained the record low rate and an overall policy of stability.

RBA Governor Glenn Stevens described financial conditions overall as “accommodative”, noting that some “emerging market countries conditions are considerably more challenging than they were a year ago.”

Key takeaways:

• The local economy grew at a below trend pace in 2013
• Inflation is expected to be consistent with the 2–3% target over the next two years
• Some business indicators have improved, but resources sector investment spending is set to decline
• Demand for labour has remained weak, edging unemployment higher
• Credit growth is slowly picking up

Looking ahead, Mr Stevens said the steady course from the RBA is expected to support demand and help growth. RP Analyst Tim Lawless add the latest housing market statistics likely created additional deliberation for the Reserve Bank at their meeting today.

Property values were up 2.3% in March, driven by Sydney and Melbourne. “Dwelling values are up 22% and 17% across these two cities since June 2012,” said Mr Lawless. He added that the volume of investment in the housing market (38% of all new housing finance commitments) might see an interest rate hike sooner than anticipated this year.

“Clearly the rate of value appreciation across the Australian housing market has been unsustainably strong over the short term, however the national economy is seeing a great deal of benefit from the increased level of both developer and buyer confidence which the RBA is likely to see as a positive outcome from the currently exuberant housing market conditions,” he said.

“If value growth continues along the current trajectory through I think the Reserve Bank will be forced to take action to quell the level of exuberance via higher interest rates.” Ged Rockliff, Savills Head of Residential Projects said a stable interest rate environment has been giving buyers further confidence to invest in residential property.

“Rental yields are still very attractive,” he said. ”Coupled with this, a low vacancy rate, a shortage of stock and an injection of key infrastructure bodes well for further capital growth. Sydney in particular has been playing catch up after the market has been dormant for a number of years and we expect continued confidence and buoyancy in the market.”

Queensland real estate agents Place said rates holding firm is a win for buyers in their state. “The competition amongst banks in terms of interest rates is really the biggest factor fuelling the current strength in the property market,” said Place CEO Damian Hackett. The Brisbane market is certainly the strongest we’ve seen it for five years, with robust buyer activity, and it’s the competition between lenders that’s fuelling that demand, as it’s creating a high level of affordability.”

Home loan comparison site Rate City says that although the official cash rate is holding firm, interest rates for savers are climbing, so it could be a good time to save for a new home, or renovation project. Rate City reports that one in five online savings accounts has a maximum rate of 4% or higher, nearly twice the cash rate and above many of the low home loan rates out there. “If your savings account doesn’t have a ‘4’ in front then it’s time to shop around and get a better deal,”  said Rate City CEO Alex Parsons.

Source: www.realestate.com.au