RBA Holds Cash Rate In April
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RBA Holds Cash Rate In April

The central bank keeps rates on hold as rising inflation continues.

By Terry Christodoulou
Tue, Apr 5, 2022 2:58pmGrey Clock < 1 min

The Reserve Bank of Australia has decided to hold the cash rate at its current low of 0.1 per cent, in line with market expectations.

The last time the rate moved was in November of 2020 when the RBA cut rates from 0.25% and began broad quantitative easing. The RBA hasn’t raised rates since November 2010.

Dr Philip Lowe, Governor of Monetary Policy outed difficulties concerning inflation caused by the war in Ukraine which has seen ongoing supply-side problems leading to inflation rising sharply in many parts of the world.

Despite this, the Australian economy remains resilient and spending is picking up from the Omicron setback while the labour market is in good health.

“The strength of the Australian economy is evident in the labour market, with the unemployment rate falling further to 4 per cent in February. Underemployment is also at its lowest level in many years,” said Dr Lowe in his monthly address.

Housing prices have eased recently with Dr Lowe continuing to urge lenders to maintain lending standards.

“With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers.”

On the future of the cash rate, Dr Lowe maintained that consistency will be the primary driver of raising rates.

“The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.”

“Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs. The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.

 

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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