RBA keeps cash rate on hold but remains under pressure to make later cut
The Reserve Bank failed to pull the trigger on a rate cut today but it is “only a matter of time” before a future cut fuels an improvement in capital city property markets, economists claim.
The RBA announced at its monthly board meeting this afternoon that the cash rate would be kept at 1.5 per cent, but housing experts said the bank was merely delaying the inevitable and a cut was imminent.
Among the chief motivators for a reduction was zero inflation reported for the March quarter and a widening of the housing slump to regions outside Sydney and Melbourne.
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RBA governor Philip Lowe said in a speech following the announcement that inflation was “noticeably lower than expected”.
The rate was kept unchanged because there was still “spare capacity” in the economy, he said.
But commentators have said it was always going to be unlikely the RBA would make a move this month, considering it was just 11 days away from an election and a cut would be seen as “political”.
Many of the economists polled in a recent Finder.com.au survey said there was a mounting case to cut rates at some point within the next six months.
When it did come, an additional cut would give housing demand a boost across the country, propping up markets where restrictive lending policies from banks have stifled buyer activity.
A cut may also encourage more investors back into the market, who have been a diminishing force in property transactions since Sydney and Melbourne prices reached their peaks in late 2017.
Investors accounted for nearly 60 per cent of Sydney housing demand in 2016, while in Melbourne it was around 40 per cent.
Another cut — which pundits said would reduce the cash rate to a historic low of 1.25 per cent — would stimulate the market by attracting new buyers to sales, many of who had previously been priced out.
But economists warned that the impact of another cut would be determined by how much of it was passed onto mortgages.
LJ Hooker head of research Mathew Tiller said banks would need to come to the party if an RBA cut was to have any gravity.
“A rate cut will only benefit property markets if the banks pass on the cut in full. This will benefit existing mortgage holders, while also enticing investors back into the market,” Mr Tiller said.
Realestate.com.au chief economist Nerida Conisbee said she expected banks to pass on any eventual cut in full and it would boost the market.
“With so much negative sentiment towards (lenders) following the Financial Services Royal Commission, it would be a brave bank to keep part of the cut to themselves,” Ms Conisbee said.
“(A cut) would be a positive result for the housing market, with prices likely to respond well.”
CoreLogic head of research Tim Lawless said borrower serviceability is still assessed based on mortgage rates of at least 7 per cent and housing sentiment remains low.
A reduction in the cash rate would provide some support for housing demand but its impact would be more muted than previous cuts, Mr Lawless said.
“We may not see quite as much stimulus for the housing market conditions that we have seen after previous rate cuts,” Mr Lawless said.
“Households who already have a mortgage or prospective borrowers who are able to satisfy lender credit policies are likely to be the biggest winners from lower mortgage rates.”
There has not been a change to the cash rate since August 2016 when it was cut by 25 basis points to its current record low of 1.5 per cent.