RBA lifted by improvements in domestic economy

September 01, 2015

A strong bounce back in consumer sentiment and sustained property price growth has encouraged the Reserve Bank of Australia to leave the official cash rate on hold for the fourth consecutive month.

“At its Board meeting earlier today, the Reserve Bank said it was prudent to leave the cash rate on hold at 2% for another month,” Mortgage Choice chief executive officer John Flavell said.

“Over the last month, the domestic economy has shown signs of improvement, with building approvals, consumer sentiment and property prices all on the rise.

“Data from the Australian Bureau of Statistics found the number of dwelling units approved over the month of July soared 4.2%, which is a good sign for the housing market and broader economy.

“In addition to improving building approval numbers, data from the Westpac Melbourne Institute of Consumer Sentiment found confidence climbed 7.8% in August to 99.5.”

While there were no significant milestones or events to warrant the bounce back in confidence, Mr Flavell said ongoing positive news around house prices may have buoyed confidence.

“Over the last quarter, property values across the combined capital cities have continued to climb, soaring 5.5%,” he said.

“Most recently, data from Core Logic found property values climbed 0.3% across the combined capital cities over the month of August.

“Sydney was once again the standout performer, with dwelling values climbing 1.1% across the capital city last month.”

Given that property values continue to climb at a fairly significant pace, Mr Flavell said the Reserve Bank are understandably hesitant to cut the cash rate again quickly.

“If rates are cut again, it could cause a spike in home buyer demand, which could force property prices higher still,” he said.

“The Reserve Bank is acutely aware of this, which is why they have decided to leave the cash rate on hold.”

But while the Reserve Bank left the cash rate on hold at 2% for the fourth consecutive month, Mr Flavell said future rate cuts couldn't be ruled out.

“The Board will continue to keep a close eye on both the domestic and global economy. And, if the need for another rate cut arises, we know the Reserve Bank won't hesitate to act,” he said.