RBA holds the cash rate at 2 per cent for July

The RBA has left the cash rate unchanged at 2.0 per cent for July in its monthly meeting today which was widely anticipated by many economists.

Soaring property prices in Sydney alongside a weaker Australian dollar are two factors that have led to the cash rate staying the same since the cash rate was cut in May from 2.25 per cent. Since June, the Australian dollar has declined in value by 1.7 per cent against the US dollar whilst according to CoreLogic RP Data, the median dwelling price in Sydney now sits at $772,200.

It is believed by many industry experts that the RBA will leave the cash rate at 2.0 per cent for some time, whilst others expect the cash rate to start rising from next year, as early as the last quarter of 2016.

The low interest rates are supporting both borrowing and spending, with stronger borrowing from businesses and there has been steady growth in lending to the housing market over the last few months. The housing market also remains strong in Sydney where dwelling values continue to increase, but at a slower rate compared to last year.

Those with a mortgage are also taking advantage of the low mortgage repayments and making larger repayments whilst interest rates are low and more affordable, before they rise.

However, this low interest rate environment is not encouraging investment and the mining industry has continued to shrink since it peaked in mid 2012. It is also bad news for savers and those relying on the interest on their savings as money in a savings account won’t be seeing much growth at present.

It is expected from later this year, the Federal Reserve will start to increase its policy rate, even though some of the major banks are still easing policy.

Interestingly, long term borrowing rates for most sovereigns also remain very low, even with the developments in China and Greece.
Published on 20th of May 2016 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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