RBA to hold on rates for now: Economists

Melissa Jenkins
(Australian Associated Press)

 

The central bank will likely sit tight on interest rates until it’s clear what impact home loan rate rises and lending restrictions have on household debt, economists say.

Minutes from the Reserve Bank of Australia’s May meeting were released on Tuesday, as property data suggests the housing market may be cooling.

House prices fell in every capital city except Brisbane over the week to May 14, with values down an average of almost one per cent, according to property analytics firm, CoreLogic.

Values in the key Sydney and Melbourne markets fell 0.4 per cent and 0.7 per cent respectively.

But the number of auctions increased compared with the previous week, up from 1,689 to 2,376, with well over three quarters of properties under the hammer sold.

Lingering concerns about the housing market, along with limp wages and jobs growth, helped keep official interest rates on hold in May.

“Growth in housing credit had continued to outpace growth in household incomes, which suggested that the risks associated with household balance sheets had been rising,” the RBA minutes read.

“Recently announced supervisory measures were designed to help mitigate these risks by reinforcing prudent lending standards and ensuring that loan serviceability was appropriate for current financial and housing market conditions.

“However, it would take some time to assess the full effects of recent increases in mortgage rates and the additional supervisory focus.”

The Australian Prudential Regulation Authority in late March capped interest-only mortgage lending, with lenders limited to keeping higher risk interest-only loans to 30 per cent of new residential mortgages.

Banks accordingly repriced their loans to make interest-only and investor loans more expensive.

RBC Capital head of Australian and New Zealand FIC Strategy Su-Lin Ong said the RBA’s minutes suggest any move on rates was some time away.

“The pointed reference to the recent step up in macro prudential measures and suggestion that it ‘would take some time to assess the full effects of recent increases in mortgage rates and the additional supervisory focus’… suggests a degree of patience from the RBA keeping it on the sidelines for some time,” she said.

JP Morgan chief economist Sally Auld said the next move in the official cash rate was likely to be down.

It’s unlikely the RBA will raise rates any time soon given the banks have adjusted their mortgage rates independently of the central bank and recent data revealing one third of households have no buffer against interest rate shocks, she said.

“We still think the next move in rates in Australia will be down, but the tone of recent communication suggests that the RBA will need further disappointment on growth and labour market outcomes to validate our view,” Ms Auld said.

CAPITAL CITY PRIVATE TREATY MEDIAN PRICES

HOUSES

Sydney – $915,500

Melbourne – $673,000

Canberra – $605,000

Brisbane – $521,250

Perth – $508,000

Darwin – $507,500

Adelaide – $440,000

Hobart – $400,000

UNITS

Sydney – $722,500

Melbourne – $545,000

Perth – $417,500

Darwin – $410,000

Brisbane – $380,000

Canberra – $400,000

Adelaide – $340,000

Hobart – $323,250

Source: CoreLogic Property Market Indicator Summary week ending May 14, 2017.

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