The Reserve Bank of Australia (RBA) has delivered its first interest rate decision of 2017 at its Board meeting today (Tuesday), leaving the cash rate unchanged at 1.5 per cent. The bank's last move saw it go to 1.5 percent - its current historic low- at its August 2016 meeting.
In the official Monetary Policy Statement, RBA Governor Philip Lowe pointed to a pickup in the mining sector to lift growth over the coming years, but said employment outcomes remain mixed across the country while inflation remains low. The Statement comes four days before the bank will offer updated forecasts for inflation and economic growth in its quarterly statement on monetary policy.
After taking account of the available information, and having eased monetary policy in 2016, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
RBA Chair Philip Lowe"The Bank's central scenario remains for economic growth to be around 3 per cent over the next couple of years. Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end," Mr Lowe said.
"Consumption growth is expected to pick up from recent outcomes, but to remain moderate. Some further pick-up in non-mining business investment is also expected.
"Conditions in the housing market vary considerably around the country. In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.
Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors. With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments," Mr Lowe said.
Laing+Simmons/REINSW: Rate Cut "Unnecessary"
Laing+Simmons Managing Director and REINSW President-elect Leanne Pilkington says the Reserve Bank had neither the justification nor the desire to reduce the official cash rate today after the rate cuts of last year, stating further easing is not needed in the current cycle.
“Obtaining housing finance at attractive terms is already possible for those with the means. It’s those without the means – stuck in the rental cycle or unable to accumulate a suitable deposit – that face the greatest challenge in the market,” Ms Pilkington said.
RBA Boardroom“And further rate cuts are not a solution to the problem. Between Government and the industry, we need to table some alternative solutions to help people buy their first home.
“From a housing industry perspective, rates are already low and have been for some time, so that piece of the affordability puzzle is in place.
“It’s through other avenues like stamp duty reform that improvements in affordability need to be addressed,” she says.
There are options available. Making the concept of downsizing more viable for older people to free up stock, introducing a Government-backed savings scheme to help people accumulate a deposit, and minimising the cost of mortgage insurance could all have a positive impact on affordability.
No More Rate Cuts In 2017: HIA
“Our forecast for some time has been for no further reduction to the Official Cash Rate (OCR) in 2017,” said HIA Chief Economist, Dr Harley Dale.
“Today’s Statement, following the decision to keep the OCR steady at 1.50 per cent in February, signals that economic conditions would need to deteriorate markedly from where they currently sit if there were to be a further interest rate cut.”
“The RBA appears slightly more bullish on the world economy and a little more sanguine regarding the risks to the domestic economy,” said Dr Dale.
“Notably, the RBA recognises the wide diversity in housing market conditions around the country. The RBA is relying on supervisory measures (i.e. APRA) to constrain any areas of the home lending market where they might have concern,” said Dr Dale. “That is an appropriate approach in the current diverse housing environment and hopefully should dampen presumptuous calls from some quarters for a rate hike in 2017,” he concluded.
While almost nobody thought that the cash rate will move from its current level of 1.5%, there’s still likely to be plenty of interest in the accompanying monetary policy statement.
Economists believe the central bank is shifting its monetary policy focus from inflation to the housing market and household debt levels.
When the board last met in December, it said “the economy is continuing its transition following the mining investment boom” with “some slowing in the year-ended growth rate likely, before it picks up again”.
24 of 25 economists polled by Bloomberg expected rates to remain unchanged while cash rate futures put the odds of a 25 basis point rate cut at just 3%.