Australian Interest Rates, the Economy and Property Market
If we look at the minutes from the most recent meeting of the Reserve Bank of Australia we can glean an important insight into how the Australian economy is placed and whether now is a good time to to invest in property, buy your first home or purchase equipment for your business.
The recent move by the Reserve Bank of Australia marks an historic low for the cash rate and Australian interest rates with various market commentators having a mixed opinion on the overall state of the economy and how the rate move will impact the economy.
When it comes to the property market, LJ Hooker chief executive Grant Harrod is reported as saying the cut, combined with capital city price growth in the June quarter, would spur listings ahead of the spring selling season.
While esteemed Finance Commentator Alan Kohler described the cut as another blow to retirees saying, “Self-funded retirees are being forced into riskier and riskier assets to try to add some meat to the three veg on their dinner plates, so Governor and his colleagues can do their macroeconomic duty.”
Australian Interest Rates: Glenn Stevens statement
Here is the media statement from Reserve Bank Governor Glenn Stevens.
“The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating.
Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
Financial markets have continued to function effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative.
In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.
Recent data confirm that inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. The most recent information suggests that dwelling prices have been rising only moderately over the course of this year, with considerable supply of apartments scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished.
Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.” (http://www.rba.gov.au/media-releases/2016/mr-16-18.html)
With a number of competing factors at play in the Australian economy it is important to make sure your home loan is performing at its best.
If your financial situation has changed recently or it has been longer than three years since you reviewed your home loan, contact us to make sure your loan is structured to get you to where you want to be.