It’s good news for home owners, home-seekers and renters alike with the Reserve Bank (RBA) announcing it would keep the cash rate on hold at a low of 1.5%.
In response to the RBA’s recent announcement, Aussie spoke to CommSec Senior Economist Savanth Sebastian to find out what the decision means for you and your home loan, as well as what we can expect in the future.
What does this announcement mean?
The RBA has announced its decision to keep the cash rate on hold, which means, unless the banks increase interest rates independently, home owners aren’t likely to see any change in their mortgage rates this month.
What’s the decision based on?
The RBA decision is in response to a number of factors including international and domestic economic conditions, inflation, employment, currency and household debt.
While the global and domestic economies are expected to post stronger growth this year, domestic inflation remains low. In addition, conditions in housing markets across Australia are mixed while employment growth is only modest.
Sebastian told Aussie that the announcement was “relatively upbeat” as the risk to the global economy has diminished significantly over the last few months.
The Reserve Bank has significantly cut interest rates over the last few years in response to weak price pressures and relatively modest economic growth. Sebastian’s forecast is that rates “will not move anywhere over 2017.”
What does this mean for you?
More homes are being built across the country – especially Sydney, Melbourne and Brisbane. Sebastian says “the increased supply of homes should lead to more choice for home-seekers and potentially slower growth of home prices”
For renters, the expected lift in the supply of new homes may maintain soft growth in rents and lead to more rental options on the market, “a positive for those looking to rent and no doubt save up for a mortgage down the track,” Sebastian added.
The expectation that rents will continue to grow only modestly at best while growth in home prices may slow are important considerations for investors.
Existing home owners
Mortgage holders will need to consider the pros and cons of a fixed or variable loan in the wake of the announcement.
There are plenty of resources home owners can use to educate themselves as to what is right for their personal circumstances, but speaking with a broker can save time and hassle.
What could the future look like?
“The RBA highlighted that inflation will lift only gradually, and so Commonwealth Bank Group economists are forecasting that the cash rate will be kept on hold for the majority of 2017,” Sebastian said.
While there is no need to discuss rate hikes yet, heading into the latter part of this year Sebastian says the RBA may begin preparing property and business owners for a cash rate hike in 2018 “if the economy evolves in the fashion we are predicting”, he added.
There has been “modest growth” across Australia’s economy but the RBA will be looking to measure the effect the currency has on growth. “Generally the RBA is more comfortable when the Aussie dollar sits closer to US72 cents rather than at US75 cents, where it’s sitting at the moment” because if the dollar is too high it can lead to weaker growth for manufacturers and tourism-dependent businesses.
“The RBA knows that if the dollar is heading back towards US70 cents, it will be a big boost towards exports and tourism dollars which will greatly support the broader economy,” Sebastian said.
With rates currently on hold and the global economy improving, CommSec predicts a rise in business investment, a sign which the RBA could then use to prepare the market for a rate rise in 2018.
To find out more about the RBA and how its decisions could affect your home loan, check out these articles or talk to your broker today.