At its July meeting today, the RBA Board has decided to leave the cash rate unchanged at 1.75 per cent. Here’s what our head of research Tim Lawless had to say about the RBA decision:

The RBA has looked through the fog of political uncertainty and global volatility to keep the cash rate on hold today.  From a housing market perspective there has recently been renewed heat in the Sydney and Melbourne markets where, according to the CoreLogic Home Value Index, the trend rate of growth has bounced higher over the past three months.  The reversal in what was previously a moderating trend in housing market conditions was likely to have been a concern to the RBA, however CoreLogic's June data showed a slower pace of capital gains compared with April and May which may indicate the recent surge in dwelling value appreciation will be sort lived. 

The chances of interest rates moving lower in August remain high;  June quarter inflation data will be available late this month, providing a timely read on consumer prices prior to the August RBA meeting.  It is likely that the inflation figures will come in well below the RBA target range of 2-3%.  If that is the case, there is a high likelihood that interest rates will move lower next month.  The challenge for policy makers and regulators will be to ensure lower mortgage rates don’t refuel a higher rate of growth in the Sydney and Melbourne housing markets where affordability is already stretched and rental yields are pushing to new record lows each month.

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