Board decision no surprise

THERE were few surprises with the Reserve Bank of Australia once again leaving the official cash rate on hold at 1.5 per cent.

Mortgage Choice chief executive officer John Flavell said the Board’s decision was “largely unsurprising” given what was taking place both abroad and domestically.

“In the United States of America in particular, soft inflation has encouraged the US Federal Reserve Board to dampen expectations of another rate increase over the short term,” he said.

“In Australia, a lower than expected inflation result is also on the Reserve Bank of Australia’s radar.

“According to the latest data from the Australian Bureau of Statistics, consumer prices rose just 0.2 per cent throughout the June quarter, pushing the annual rate of inflation down to 1.9%. “Not only is this slightly down on the previous reading of 0.5% for the March quarter and 2.1% for the year, but it is below the Reserve Bank’s target band range of two to three per cent.”

In addition to a lacklustre inflation result, Mr Flavell said the Reserve Bank’s cash rate decision would have been based on the latest developments in the property and lending markets as well as the latest movement in the Australian dollar.

“The Reserve Bank would be acutely aware of this, and would be looking to balance the strong Australian dollar with soft inflation and ongoing changes in the lending markets.

“Over the last couple of months, many of Australia’s lenders have adjusted the pricing across their suite of home loan products. Many continue to lift the price of their interest only loans for both investors and owner occupiers. As such, the spread between principal and interest and interest only pricing is now approximately 80 basis points.

“We have also seen some change in the property markets, with areas like Sydney and Melbourne continuing to perform strongly.”

Looking ahead, Mr Flavell said he wouldn’t be surprised to see further growth in these capital cities, given that both states have recently introduced a raft of first home buyer incentives.

“I think the first home buyer incentives offered by New South Wales and Victoria may cause the shape of the market to shift. Over the coming months, I wouldn’t be surprised to see more first home buyers and fewer investors playing in these markets.”

Given the latest developments both here and abroad, Mr Flavell said the Reserve Bank was right to leave the official cash rate on hold.

Looking ahead, Mr Flavell said he wouldn’t be surprised to see the Reserve Bank leave the cash rate on hold for a little while yet.