Rates remain on hold
· Official rates to remain on hold over July
· Better economic data indicates wait and see approach over coming months
· Housing market activity remains generally strong
· Low deposit rates to drive residential investment
The Reserve Bank has decided to leave official interest rates at the record low of 2.0 percent over July for the second consecutive month.
The Bank cut rates in May by 0.25 for the second time this year following a similar easing in February. The bank has acted to cut interest rates to stimulate an underperforming economy impacted by reduced activity from the resources sector.
Latest economic data however has been more positive with the national unemployment rate falling to 6 percent over May – the lowest rate since May 2014. Retail sales recorded solid growth over May with building approvals continuing the strong recent growth over the month. The dollar has also tracked lower over the month as another positive for the Reserve Bank.
Lower interest rates this year have translated into boom-time conditions in both the Sydney and Melbourne housing markets. Sydney has recorded its highest ever June auction clearance rate with the Melbourne auction market maintaining its strongest levels since 2007. Other capital city housing markets however continue to report mixed results.
Given an improving economic outlook, official interest rates are likely to remain on hold over the foreseeable future. The current wait and see approach by the Bank will be enhanced by uncertainty over the Greek sovereign debt crisis and its impact on the Eurozone and international economies.
House price growth, particularly in Sydney and Melbourne, however will continue to be 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.
Dr Andrew Wilson is Domain Group Senior Economist