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RBA keeps interest rates on hold – March 2015

The Reserve Bank has kept interest rates on hold this month, with the cash rate remaining at a record low 2.25%. The steadying move follows a February rate cut of .25 percentage points.

Some economists had tipped the RBA to reduce the cash rate amid news of a slowing Chinese economy, higher unemployment and weak jobs growth. RBA Governor Glenn Stevens said despite a slowdown in China, global growth was continuing at a moderate pace. “Financial conditions are very accommodative globally, with long-term borrowing rates for several major sovereigns at all-time lows over recent months,” says Stevens.

“At today’s meeting the Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target.”

In its statement, RBA noted the strong growth in housing assets. “Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months,” says Stevens. “The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates.”

How does this affect certain sectors of the market….

  1. Borrowers still in winning position

The hold on rates is still good news for homeowners and property seekers with last month’s cut passed on by most lenders. “Today’s cash rate pause announcement is good news for savers, who have been hit hard with cuts to their returns for over three years,” says finder.com Money Expert Michelle Hutchison.. “But it’s not expected to last long, with another rate cut on the cards in the near future, with the majority of experts (57%) forecasting another rate cut by June 2015. “After last month’s rate cut, we saw 33 lenders announce rate cuts and all of them passed on the full cut, if not more. Many savings accounts also took a dive. “If the Reserve Bank cuts the cash rate again, the pressure is on for lenders to continue their good will by passing on the full cuts to variable rate mortgage holders as well as other borrowing customers such as for personal loans and credit cards.”

  1.  Housing market continues to grow

As interest rates fell last month, property values headed north. “We are already seeing the effect of lower mortgage rates, with auction clearance rates surging to the highest levels we have seen since 2009 and valuation activity across CoreLogic RP Data valuation platforms reaching new record highs based on daily averages over the second half of February,” RP Data’s Tim Lawless says.

“Despite the flurry of activity, it will likely take some time to see this flow through to a higher rate of capital gain.”

  1. Sydney and Melbourne lead the way

The housing market continues to gain strength in 2015 with the latest RP Data Home Value Index showing a 0.3% rise in capital city dwelling values in February. This follows a rise of 1.3% in January. Values have risen a total of 8.3% during the past 12 months.

Sydney continues to lead the way, with dwelling values 13.7% higher than the same time last year. Melbourne values were up 7.4%, while Brisbane saw the third highest increase with values up 5.9% in the past 12 months. Highlights for the 3 months to February 2015 include:

  • Best performing capital city: Melbourne +4.5%
  • Weakest performing capital city: Darwin -1.0%
  • Highest rental yields: Darwin houses with gross rental yield of 5.9% and Darwin Units at 5.8%
  • Lowest rental yields: Melbourne houses with gross rental yield of 3.2% and Melbourne units at 4.2%
  • Most expensive city: Sydney with a median dwelling price of $680,000
  • Most affordable city: Hobart with a median dwelling price of $336,500
Source: realestate.com.au March 03, 2015
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