Interest Rates Likely to Stay On Hold For 2016

Interest Rates Likely to Stay On Hold For 2016

4 Oct 2016 Professionals 0 Comment

The Reserve Bank of Australia has kept interest rates on hold at the historic low of 1.50 per cent after lowering rates in May and August of this year.

This decision is the first by new RBA governor Dr Phillip Lowe after replacing long-time governor Glenn Stevens last month.

A high Australian dollar and low inflation rate have contributed to the RBA’s decision this month.

“Inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time,” read the RBA’s statement.

The RBA also noted that while low interest rates have been helping the trade sector, an appreciating exchange rate could complicate this.

The RBA has a tough job of walking the fine line between trying to keep the economy churning while also being wary that lowering rates can put fuel on the flames of the property market, particularly in places like Sydney and Melbourne where real estate remains extremely popular.

The RBA’s statement said that supervisory measures have strengthened lending standards in the housing market, which seems to have helped slow lending growth. However, while turnover in the housing market has declined and the rate of increase in housing prices is lower than it was a year, “some markets have strengthened recently”.

The RBA will need to keep their eye on the property market to ensure low rates don’t lead to overheating, but low rates are needed to help bolster the economy and keep the dollar and inflation under control.

Overall the RBA looks set take a wait and see approach as it can take time for low interest rates to start having the desired effect on the economy.

Economists had previously been split over whether or not there is likely to be any more interest rate cuts this year, but with only 2 meetings left for the year it is looking increasingly unlikely that we will see another interest cut before the end of the year.

It is very unlikely that there will be any interest rate hikes any time soon, so homeowners should be able to enjoy low interest rates for quite awhile yet.

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