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Rates to hold at 1.5 per cent until 2017

Rates to hold at 1.5 per cent until 2017

September 5, 2016: The cash rate is set to hold at 1.50 per cent at Tuesday’s Reserve Bank meeting, with the Board likely to sit on its hands until the August cut has had a chance to flow through the economy.

A RateCity.com.au analysis of over 30 key economic indicators suggests that the RBA will continue its wait-and-see approach in September in the lead up to the busy Spring housing period.

Peter Arnold, data insights director at RateCity.com.au, said a hot housing market, high household debt levels and subdued investor lending has steadied the RBA’s hand.

“After two rate cuts this year the housing market is heating up, with house prices holding strong and auction clearance rates and building approvals both rising,” he said.   

“Australian households have more debt compared to the size of the country’s economy than any other in the world, partially fueled by record low rates.

“The higher our debt levels, and the closer we get to a zero cash rate, the less effective each cut becomes and the RBA will be keenly aware of that fact having seen the impact of negative rates around the world.

“Evidently, consumer confidence took a dive, despite rate cuts in May and August, driven by households’ views of the economic outlook.

“In theory, a rate cut gives consumers some more spending money which helps to kick along the economy. But the banks withheld almost half of the last cut, so the Board is unlikely to pull the trigger again this year.

“On top of that, APRA and the banks are happy with the caps put on investor lending, which gives the RBA further breathing room.”

As always, the RBA will be closely tracking movements in the international markets, including China and the US and the impact to our exports prices and the Australian dollar.

“The Federal Reserve is getting closer to lifting US interest rates, while Chinese iron ore futures tumbled late last month putting further pressure on our export prices – both of which have ramifications for our domestic economy,” he said.

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