RBA keeps rates low

RBA keeps rates low

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Ultra low interest rates look set to continue to entice more owner-occupiers into the property market.

The Reserve Bank of Australia’s (RBA’s) recent decision to keep the nation’s official cash rate unchanged at the historic low of 0.10 per cent is helping to keep rates low. This is largely because it allows banks to borrow money at the same three-year fixed rate.

The decision to leave interest rates on hold comes as no surprise to economists, after the RBA confirmed on several occasions that rates will likely remain as they are until 2024 at the earliest.

RBA Governor Philip Lowe says while the rollout of vaccines is supporting the recovery of the global economy, the recovery is not yet even.

Lowe says while global trade has picked up and commodity prices are mostly higher than at the start of the year, inflation remains low and below central bank targets.

“The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending. Nevertheless, wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high.”

Lowe says housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit growth remains subdued.

“Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

The RBA is committed to maintaining highly supportive monetary conditions until its goals are achieved and will not increase the cash rate until actual inflation is sustainably within the two to three per cent target range, Lowe says.

“For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

The RBA’s position helps support the view of various property experts, who as far back as December predicted that 2021 would kick off a positive three-year investor environment with strong price growth and favourable economic trends.

In an interview late last year with Smart Property Investment, OpenCorp director Michael Beresford noted that 2021 through to 2023, was going to be a “really, really good time for investors and really strong price growth”.

“The reason why we say that and the reason why that view is so well shared and agreed upon, the RBA have come out and said that cash rate at record lows of 0.10 per cent is going to remain for the next three years to get the economy re-stimulated.

“So, we know that with interest rates not moving anywhere, costs to hold are zero, properties will be paying for themselves, so you can be in the market without it impacting your lifestyle at all, provided you’ve got job security.”

Beresford told the publication his confidence was based on previous years where clear upswings have followed serious downturns and the fundamentals that drive property markets – interest rates, population growth and supply, lending policies and government stimulus, infrastructure and spend.

“If we look at where everything is lining up on these fundamentals now, it’s really appealing for property investors.”

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