Rates remain unchanged for the 14th straight month

By the resi financial blog team, 08 October 2014

October 2014 RBA update

The Reserve Bank of Australia left rates unchanged at 2.5 per cent for the 14th straight month at its latest board meeting, with RBA governor Glenn Stevens again reiterating that the dollar remains too high.

He says while the exchange rate has declined recently – largely reflecting the strength of the US dollar – it is still high by historical standards, “particularly given the further declines in key commodity prices in recent months”.

Mr Stevens says monetary policy remains accommodative. “Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased,” he says. “Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth is moderate overall.”

The RBA indicated it has little scope to lift rates in light of the decline in the mining boom and the high dollar, and growth is expected to remain a little below-trend for the next several quarters.

Unemployment is also expected to take some time to fall consistently and recent labour market reports have been volatile. “Growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead,” Mr Stevens says. “This should keep inflation consistent with the target even with lower levels of the exchange rate.”

The RBA has recently been talking about introducing macro-prudential measures, where restrictions are put in place on high-risk lending instead of raising rates as a way to take the heat out of the property market.

Mr Stevens says housing prices have continued to rise over recent months and noted "a further pick-up in recent months in lending to investors in housing assets", to reflect its growing concerns about a build-up of risk in the sector.

While consensus among analysts is that no rate rises will occur until 2015, this should not lull investors into a false sense of security. Interest rates will rise at some point and housing market investors need to weigh up whether or not to fix their home loan rate now to guard against future increases.

Categories: interest rates, RBA update