Yesterday the Reserve Bank of Australia announced their decision to leave the official cash rate unchanged at 2.5%. Today, Chisholm & Gamon look at the most recent RBA monetary policy decision and how it will impact upon the property market over the coming months.
It is widely understood that the Australian economy has slowed down and is growing at below predicted trends in some sectors. This condition is considered by economists as normal – evidence that the economy is adjusting to lower levels of mining investment. As the year elapses, we can expect to see confidence levels increase across the economy – especially when it comes to household and business sentiment.
Of late there has been a clear increase in demand for finance from households, with data showing to a shift in savings behaviour when responding to “declining returns on low-risk assets”. Such a response illustrates that the economy continues to feel the positive impact of interest rate cuts from earlier in 2013. Despite the fact that unemployment has nominally risen, “inflation has remained steady and will continue to do so as the cost of labour moderates.”
RBA Governor Glenn Stevens notes that “the easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values…. the full effects of these decisions are still coming through, and will be for a while yet.”
Immediately after the RBA’s most recent announcement, the Australian dollar gained 1/3 of a US cent – rising to $93.74. This level is still 10% below its previous high in April. The RBA has cut rates a total of 8 times since late 2011, all with the aim of increasing economic activity outside of the mining industry.
RP Data-Rismark has shown Melbourne and Sydney property prices have jumped up to 2.5% in September. “We haven’t seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne,” Tim Lawless from RP Data commented.
So what of key trading partner China and its influence on our economy? The world’s second largest economy has grown and expanded in September – and with Australian retail showing signs of improvement, we can look forward to another period of happy trade with China.
The central dilemma the RBA face? Whether to cut rates further. With property prices on the rise, unemployment slightly higher and gathering strength in the Australian dollar – economists are divided over such a decision. Tom Kennedy of JP Morgan believes another rate cut may be on the cards this year, a sentiment not shared by HSBC chief economist Paul Bloxham. His notes that the RBA’s decision yesterday was “fairly bland” and did not provide enough insight into future movements from the RBA board.
All eyes focus on our inflation levels and the next announcement from the RBA on Melbourne Cup Day. What will you be tipping?