Tim Lawless, CoreLogic Head of Research, comments on RBA's decision to leave the cash rate at 2.0%
There are plenty of reasons why the RBA may have contemplated cutting the cash rate today. Australia’s terms of trade are approaching ten year lows due mostly to lower export prices, inflation is tracking at the bottom of the RBA’s target range and the Aussie dollar has once again seen some upwards pressure; however the housing market is playing out exactly as the RBA probably would have hoped: losing steam without a collapse in values.
The last three months have seen capital city dwelling values drift 0.6% lower and capital city home values are up by only 0.7% over the past six months. The RBA probably doesn’t need to worry too much about over stimulating the housing market via another rate cut; mortgage rates are already higher than a year ago due to the higher capital requirements implemented by APRA and the pace of investment growth has fallen below APRA’s 10% speed limit imposed in December 2014.
Other factors adding to the hold argument were likely to have been around labour markets which have been showing a healthy trend based on the Bureau of Statistics data and retail sales showing a better appetite for households to spend. With heat in the housing market no longer likely to be a major concern for the RBA, a major obstacle has been removed from preventing rate cuts and we may see the cash rate move lower later in the year.
Read RBA's media release here.