RBA: interest rates on hold in August ‘good news’

It’s steady-as-she-goes for homeowners, with the Reserve Bank of Australia again leaving official interest rates on hold.

The official interest rate remains at 2.5% – the same level it’s been since this time last year.

Reserve Bank Governor Glenn Stevens says it’s still prudent to have stable interest rates.

He says there has been moderate growth in consumer demand and a strong expansion in housing construction.

“Interest rates are very low and for some borrowers have continued to edge lower over recent months.

“Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses.

“The increase in dwelling prices has been slower this year than last year, though prices continue to rise.”

John Caelli, ME Bank’s  General Manager Markets, expects interest rates to remain on hold for the next six months.

RP Data research director Tim Lawless agrees.

“The RBA interest rate decision came at a time when value growth across the housing market is continuing, albeit at a more moderate pace than late last year,” Lawless says.

RP Data recently reported Australian dwelling values increased 1.1% in the three months to July.

“Although the rate of growth is slowing, policy makers, including the RBA, are likely to be keeping a close eye on the ongoing increases in home values across the two largest cities (Sydney and Melbourne),” Lawless says.

“It is looking increasingly like the official cash rate will remain at its low setting, at least for the remainder of this year, which should continue to support housing demand.

“Capital gains over the past 12 months were recorded at 10.2% across the combined capital cities, however we are expecting growth rates to moderate over the coming months as natural affordability constraints and low rental yields in the largest capital cities work to slow the rate of capital gains.”

Housing Industry Association Senior Economist Shane Garrett says low interest rates have “breathed life into sectors of the economy that had previously been on the ropes”.

“The current climate of low rates offers the strongest hope that residential construction can continue to put the economy back on tracks.”

Sourced: www.realestate.com.au