The Reserve Bank of Australia’s decision to hold the cash rate at 2.0% for the second consecutive month has proven that the central bank is taking “a wait-and-see approach”, says Domain’s senior economist Andrew Wilson.
The RBA’s official statement stated that “low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with stronger borrowing by businesses and growth in lending to the housing market broadly steady over recent months”.
The central bank also recognised that housing prices were still rising dramatically ,especially in Sydney, “though trends have been more varied in a number of other cities”.
The central bank cut the rates in May for the second time this year, hoping to stimulate the underperforming Australian economy. Both cuts saw a decrease of 0.25%.
These lowered interest rates led to the boom in housing markets like Sydney and Melbourne, where Sydney reported its highest ever June auction clearance rate. Melbourne’s auction market, on the other hand, maintained its strongest levels since 2007.
“Today’s decision by the Reserve Bank to leave the rates on hold over July is indicative of a wait-and-see approach and is expected to continue over for the foreseeable future,” he said.
Wilson added that the central bank’s approach may have been also influenced by the uncertainty on Greek’s sovereign debt crisis and its impact on the Eurozone and international economies.
The economist predicts that house price growth, particularly in hot markets like Sydney and Melbourne, will remain strong and fuelled by the lowest mortgage rates since the mid 1960’s.
“Low bank deposit rates will also continue to activate investment in residential property chasing both higher yields and capital gains,” he said.
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