Rates on hold for now, but expect an increase soon.

Last week at its monthly meeting the Reserve Bank of Australia decided to keep the official cash rate on hold at 4.75 per cent.  This decision is good news for the residential property market as it means that mortgage holders have at least another month without an increase to their repayments.  Having said this, I do feel that buyers and home owners are going to need to prepare for a rate rise in the coming months. 

In his statement following the rate hold announcement, the Governor of the RBA, Glenn Stevens, said that the RBA Board felt the current mildly restrictive stance of monetary policy remained appropriate, but that in future meetings the Board would continue to carefully assess the evolving outlook for Australia’s growth and inflation.

In terms of the global economy, the RBA felt despite other countries moving to tighten their monetary policy settings, financial conditions continue to remain accommodative.  There has been some interpretation in the media post decision however that the RBA also recognises that the strong Australian dollar poses some risk to our economy. 

An important consideration for the RBA has always been levels of inflation.  The recent official inflation data for the first quarter released by the Australian Bureau of Statistics saw a surprise jump of 1.6 per cent in the CPI over the March quarter, which is the largest quarterly rise seen in the CPI in five years. 

The RBA’s statement showed that it recognised the issue of increasing inflation.  While the RBA expects inflation will be close to its target levels over the year ahead, Governor Stevens acknowledged that recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course.  He said that over the longer term inflation can be expected to increase somewhat if economic conditions evolve as broadly as expected.  We need to recognise that such an increase would strengthen the possibility of a rate rise.  

Getting back to property, as a result of this rate hold CENTURY 21 continues to believe that the residential market is an attractive environment for property buyers, given the amount of stock that is currently available and the low clearance rates that we are seeing. 

In approaching a property decision, buyers need to recognise the possibility of a rate rise and obtain an understanding about how this outcome could affect the viability of their purchase.  Current owners with mortgages also need to practically prepare for the increased repayments that an interest rate rise would result in, and use this month’s rate rest to budget accordingly. 

And so, for the sixth month in a row we wait to see what the next RBA decision will bring.  While we cannot be sure when a rate increase will come, we can recognise that current economic indicators point to its eventual arrival.  It is my view that the best action that residential property owners and purchasers can take is to prepare adequately.