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
