RBA holds cash rate at 2.0 per cent

The Reserve Bank of Australia (RBA) has held the official cash rate at its historic low of 2.0 per cent for June, after lowering it by 25 basis points last month.

This decision to keep the cash rate unchanged was expected by many industry experts and the RBA stated that “leaving the cash rate unchanged was appropriate at this meeting”.

There are many factors in play that are contributing to the growing economy including:

• Household spending has improved
• Increase in new dwelling construction
• Rise in exports
• Labour costs growing slowly

In spite of this, the mining sector has weakened and the Australian dollar has continued to decline in value against the rising US dollar, although a weaker Australian dollar is having a positive impact on tourism.

The lower interest rate environment is helping to support both customer borrowing and spending, even though banks have brought in tougher lending rules for property investors.

However, dwelling prices are still rising strongly in Sydney due to the limited number of listings currently available, and auction rates in Sydney and Melbourne are at record highs continuing to push up property prices. Values in Sydney have risen by almost 40% in the past three years.

According to Tim Lawless, head of research at CoreLogic RP Data, "At a time when interest rates remain low, there is the expectation that tougher lending requirements to investors as well as higher supply levels will start to cool housing market conditions and bring the rates of capital gain back to more sustainable levels across the two largest cities where growth in dwelling values has been the highest."