Rates on hold as RBA Board keeps a watch on inflation
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Rates on hold as RBA Board keeps a watch on inflation

The Board presses pause on another rate hike for the third consecutive month

By KANEBRIDGE NEWS
Tue, Sep 5, 2023 2:53pmGrey Clock 2 min

Interest rates will remain on hold for another month, the RBA Board announced today. 

In a statement released by Dr Philip Lowe – his last as governor of the RBA – he said the current 4.1 percent interest rate is creating ‘a more sustainable balance’ between economic supply and demand.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month,” Dr Lowe said. “This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

The news was widely expected among economists and the major banks following the announcement that the rate of inflation had fallen to 4.9 percent in July, down from 5.4 percent in June.

Dr Lowe said inflation had passed its peak but it was still too high.

“While goods price inflation has eased, the prices of many services are rising briskly,” he said. “Rent inflation is also elevated. The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 percent target range in late 2025.”

CoreLogic research director Tim Lawless said rents would most likely continue to put pressure on inflation for some time yet.

“CPI rents, which are allocated the second largest weighting within the CPI ‘basket’, remain a major inflationary driver, with the monthly CPI indicator reporting a 7.6 percent rise in the cost of rents in the year to July, accelerating from 7.3 percent in June. 

“The trend indicates no slowdown in growth for rents paid.”

Acknowledging the two speed economy, Dr Lowe said some Australians were feeling the financial pinch of elevated interest rates more than others.

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” he said.

However, he did not rule out further rate increases.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks,” he said. “In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. 

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.

Dr Lowe will step down as governor in two weeks’ time. He will be succeeded by Michele Bullock.



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Hong Kong Takes Drastic Action to Avert Property Slump

The city’s real-estate market has been hurt by high interest rates and mainland China’s economic slowdown

By ELAINE YU
Fri, Mar 1, 2024 3 min

Hong Kong has taken a bold step to ease a real-estate slump, scrapping a series of property taxes in an effort to turn around a market that is often seen as a proxy for the city’s beleaguered economy.

The government has removed longstanding property taxes that were imposed on nonpermanent residents, those buying a second home, or people reselling a property within two years after buying, Financial Secretary Paul Chan said in his annual budget speech on Wednesday.

The move is an attempt to revive a property market that is still one of the most expensive in the world, but that has been badly shaken by social unrest, the fallout of the government’s strict approach to containing Covid-19 and the slowdown of China’s economy . Hong Kong’s high interest rates, which track U.S. rates due to its currency peg,  have increased the pressure .

The decision to ease the tax burden could encourage more buying from people in mainland China, who have been a driving force in Hong Kong’s property market for years. Chinese tycoons, squeezed by problems at home, have  in some cases become forced sellers  of Hong Kong real estate—dealing major damage to the luxury segment.

Hong Kong’s super luxury homes  have lost more than a quarter of their value  since the middle of 2022.

The additional taxes were introduced in a series of announcements starting in 2010, when the government was focused on cooling down soaring home prices that had made Hong Kong one of the world’s least affordable property markets. They are all in the form of stamp duty, a tax imposed on property sales.

“The relevant measures are no longer necessary amidst the current economic and market conditions,” Chan said.

The tax cuts will lead to more buying and support prices in the coming months, said Eddie Kwok, senior director of valuation and advisory services at CBRE Hong Kong, a property consultant. But in the longer term, the market will remain sensitive to the level of interest rates and developers may still need to lower their prices to attract demand thanks to a stockpile of new homes, he said.

Hong Kong’s authorities had already relaxed rules last year to help revive the market, allowing home buyers to pay less upfront when buying certain properties, and cutting by half the taxes for those buying a second property and for home purchases by foreigners. By the end of 2023, the price index for private homes reached a seven-year low, according to Hong Kong’s Rating and Valuation Department.

The city’s monetary authority relaxed mortgage rules further on Wednesday, allowing potential buyers to borrow more for homes valued at around $4 million.

The shares of Hong Kong’s property developers jumped after the announcement, defying a selloff in the wider market. New World Development , Sun Hung Kai Properties and Henderson Land Development were higher in afternoon trading, clawing back some of their losses from a slide in their stock prices this year.

The city’s budget deficit will widen to about $13 billion in the coming fiscal year, which starts on April 1. That is larger than expected, Chan said. Revenues from land sales and leases, an important source of government income, will fall to about $2.5 billion, about $8.4 billion lower than the original estimate and far lower than the previous year, according to Chan.

The sweeping property measures are part of broader plans by Hong Kong’s government to prop up the city amid competition from Singapore and elsewhere. Stringent pandemic controls and anxieties about Beijing’s political crackdown led to  an exodus of local residents and foreigners  from the Asian financial centre.

But tens of thousands of Chinese nationals have arrived in the past year, the result of Hong Kong  rolling out new visa rules aimed at luring talent in 2022.

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