Reserve Bank Had No Choice: Laing+Simmons

With the election result still in limbo, Australia’s AAA rating apparently under threat and the ramifications of Brexit on the domestic market not yet fully known, the Reserve Bank had no option but to leave interest rates on hold, said Laing+Simmons Managing Director Leanne Pilkington.

However this doesn’t mean the chance of another cut in coming months is off the table, Ms Pilkington said.

“Regardless of who wins Government, there seems little in our immediate economic future to indicate a major change to the status quo. Affordability will remain a concern, particularly for first home buyers, while key indicators like inflation, wages growth, consumer sentiment and unemployment all appear relatively steady.

“While some might argue the case for a rate cut based on these factors, the Reserve Bank was always expected to stay the course given the broader economic volatility.

“However the full extent of the Brexit shock and the associated uncertainty in global markets has not yet been determined, particularly in a domestic sense. Continued flat income growth and low inflation could see the RBA pull the trigger on another rate cut sooner rather than later.

“From a property perspective, this alone would make little difference. For those in secure employment with suitable savings, obtaining a loan at an attractive rate is already possible.

“It’s those in the rental cycle who are trying to accumulate a deposit in an uncertain environment, and with the burden of stamp duty looming large, for whom the situation is unlikely to improve.

“Meanwhile for would-be investors, the waiting game continues in the immediate term as the prospect of Labor’s negative gearing reforms cannot yet be ruled out,” Ms Pilkington said.

The Housing Industry of Australia also added comments.

“The key point from today’s Monetary Policy Decision is that the Reserve Bank of Australia (RBA) is prepared to lower rates further in 2016 if they deem such action is required,” said HIA Chief Economist, Dr Harley Dale.

“Political uncertainty at home and abroad has increased the chance of a second cut to the OCR later in the year.”

Everybody expected the Board to leave the Official Cash Rate (OCR) steady for this month and that’s what they decided to do, report the Housing Industry Association, the voice of Australia’s residential building industry.

“Looking ahead, the current political dynamic increases the prospect of a loss in confidence and economic activity in Australia in 2016/17. Hence the reason for the increased probability of a rate cut occurring over the August – December period.”

“The residential construction industry has kept the domestic Australian economy afloat over recent years,” said Harley Dale. “The on-going strength of the industry will provide vital short term stability to the economy at a time of heightened political uncertainty.”

“Should any loss of confidence in housing emerge in coming months then that would send an early signal of deteriorating prospects for the broader Australian economy,” concluded Harley Dale.