There’s been quite a bit of comment in various sections of the media recently about the Reserve Bank’s decision to leave interest rates on hold this month. Most of the commentary has been focused on whether we will see any more reductions to official rates, and if so, when.
However, there’s hasn’t been a lot of analysis of what is pushing the RBA to make a call one way or another, so I thought it was worth taking a brief look at this in order to keep these discussions in ming clear is that the RBA is finding it increasingly difficult to resolve a few market forces that are pulling in different directions right now. The dilemma stems from the fact that different sections of today’s economy are performing in quite different ways. So while some sectors would probably warrant some additional monetary stimulus, others are probably giving the RBA more reasons to apply the brakes rather than the accelerator!
Today’s property market is a prime example of this. With the resources sector generally slowing, the RBA is keen to see growth in industries like housing construction in order to keep the overall economy ticking over. However, the growth in median property values in Melbourne and Sydney recently has made any move to reduce interest rates a potential problem as it may help push prices upward at an unhealthy rate.
This problem is actually more complicated than that. Recent APM data shows that whilst Melbourne and Sydney achieved price growth of 5%-plus in the September quarter, most other Australian capitals experienced far more modest growth. So the interest rate equation changes depending on which State you’ve invested in and I can’t see them setting different interest rates in different States!
The one message that seems to have gained consensus among the majority of economic forecasters is that the RBA remains unlikely to raise interest rates for quite some time to come and that’s good news for property investors everywhere!