Money, Trading and Commerse :: World finance

Rba keeps interest rates on hold in october




THE Reserve Bank of Australia has left the cash rate on hold for the 14th consecutive month, in a move widely expected.

The cash rate has been kept at a historic low of 2.5 per cent since August last year. The 14-month rate hold is the longest in more than 10 years.

In a statement, RBA governor Glenn Stevens said the Bank expected growth to be a little below trend for the next several quarters.

READ: RESERVE BANK GOVERNOR GLENN STEVENS FULL STATEMENT

In Australia, most data are consistent with moderate growth in the economy, he said.

Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates.

Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.

Mr Stevens alluded to concerns over the overheated housing market. Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased, he said.

Investors continue to look for higher returns in response to low rates on safe instruments.

Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.

Although the Australian dollar had fallen recently, it was still offering less assistance than would normally be expected in achieving balanced growth in the economy, he said.

The Australian dollar has taken a dramatic fall in the past month, falling from 94 US cents to a low of 86.43 US cents.

But Mr Stevens said the exchange rate remained high by historical standards.

JP Morgan economist Ben Jarman said the RBAs statement showed it was paying close attention to falling commodity prices and Chinas weakening property market.

That means interest rate hikes are likely still a way off, he said.

It seems like thats well and truly on the backburner, if anything the way that the concerns are evolving towards external issues like Chinese commodity prices suggests they are being more cautious, Mr Jarman said.

Concerns about a possible housing bubble did not appear to be weighing heavily on the RBAs mind, he added.

It seems very premature to jump to the conclusions that housing would be giving the RBA an itchy trigger finger on rate hikes, Mr Jarman said.

Michelle Hutchison, money expert at comparison website Finder.com.au, said: All 28 leading experts in our monthly Reserve Bank Survey were precise with their prediction that the Reserve Bank would keep the cash rate unchanged at 2.5 per cent at its board meeting today.

Ms Hutchison said all 28 experts were now expecting the cash rate to rise next year, after some pushed back their forecasts from the start of the year.

For instance, six months ago the survey showed almost half of the respondents five out of 11 expected the cash rate to start rising this year. Now, all of the experts are betting on a cash rate rise next year, with an average forecast of June 2015.

Economists surveyed included Michael Blythe from Commonwealth Bank, Savanth Sebastian from CommSec, Paul Bloxham from HSBC, Janu Chan from St. George and Michael Witts from ING Direct.

There has been talk in recent weeks of the RBA introducing macro-prudential measures whereby restrictions are put in place on high-risk lending instead of raising rates as a way to put the brakes on the real estate market.

In a statement, Loan Market chairman Sam White said: Broadly we support this way forward. However, wed urge the RBA not to penalise first home buyers from entering the market, as has happened recently in New Zealand.

Reserve bank leaves cash rate on hold as building approvals fall off a cliff


THE Reserve Bank has kept the official cash rate on hold at 2 per cent amid growing concern about a slowdown in the Australian housing market.

The central bank last moved in May 2015, when it cut the official cash rate by 25 basis points to its historic low, and was widely expected to hold in its second meeting of the year.

RBA Governor Glenn Stevens said available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment.

This was reflected in improved labour market conditions. The pace of lending to businesses also picked up, he said in his statement.

Mr Stevens said continued low inflation would provide scope for further easing.

Although below trend, economic growth is still holding, with enough positives to outweigh the negatives, BIS Shrapnel head economist Richard Robinson told Finder.com.aus monthly survey.

Confidence rebounded in February, so consumers are not panicking, and households will continue to spend, albeit with modest growth.

But it comes as new data shows approvals for the construction of new homes fell 7.5 per cent in January, which was worse than market expectations of a three per cent fall.

AMP Capital chief economist Shane Oliver said it appeared to have been caused by exhaustion.

Normally building approvals roll over when interest rates start rising, Dr Oliver told news.com.au.

[While] there were some minor increases last year, really the reason is approvals reached record highs and developers realised it would cause indigestion in the market.

With mining investment still with another year or two to fall off, and the coming slowdown in the housing market, the overall drag on the economy would likely push the RBA to cut rates further by midyear, Dr Oliver predicts.

But while the Australian market is probably around 30 per cent overvalued, talk of a looming housing crash is overblown, he argues.

Using words like bubble and Ponzi, that sort of headline-grabbing stuff does that well, but its nothing new. House prices have been overvalued now relative to income and rents for the last 10 to 15 years.

A crash would require a trigger, such as a strong spike in interest rates or unemployment, enough to cause mass defaults and forced selling, according to Matthew Tiller, head of research at LJ Hooker.

In the short term it doesnt look like that kind of event will occur, he said.

Last month, three lenders Yellow Brick Road, Bankwest and Australian Unity quietly hiked their variable rates while the cash rate paused.

Some lenders have a tendency to keep their rate hikes quiet, said Bessie Hassan, spokeswoman for comparison website Finder.com.au.

With the uncertainty in the market, its really important that homeowners dont become complacent about their mortgages and therefore miss any important news that may impact their finances.

Australians should be cautious experts are divided about what lenders will do next. While we dont expect a dramatic upswing in rates, they can turn very quickly and catch borrowers by surprise.