IT WAS a safe Melbourne Cup day bet. As widely expected, the Reserve Bank has left the official cash rate on hold at 1.5 per cent at its November board meeting.
The RBA last cut in August, the second this year following a cut in May. Despite Melbourne Cup day traditionally being a popular day for the RBA to move rates, the majority of economists predicted no change this month.
The RBA has avoided moving for the past four Melbourne Cups, but moved rates up or down every year from 2006 to 2011.
RBA Governor Philip Lowe said the rate of increase in house prices was lower than a year ago, but had picked up over the past few months in some markets.
“Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities,” he said in his statement.
Tim Lawless, research director at CoreLogic, said the decision to keep rates on hold was “arguably one of the safer bets today”.
“The performance of the housing market was likely a key topic of discussion among RBA board members, with CoreLogic’s October results released today showing a further 0.5 per cent rise in dwelling values across the capital cities,” he said.
Mr Lawless said the index had increased by 4 per cent across the combined capitals since the first rate cut in May this year, with bigger rises in Sydney and Melbourne. “With the cash rate on hold, mortgage rates are likely to remain at the lowest level since the mid 1960s,” he said.
“It’s becoming more broadly accepted that such low mortgage rates have contributed to a renewed strengthening in housing market conditions despite lower transactional activity and rising affordability constraints, and policy makers would be reluctant to offer more stimulus to the already hot housing market performance.”
LJ Hooker chief executive Grant Harrod said the decision to leave rates on hold was a positive for the property market, with auction clearance rates surging over 80 per cent for Sydney and Melbourne last month.
“As October’s auction clearance rates showed, sellers are enjoying a period of strong demand in the marketplace,” Mr Harrod said.
“A cut would have heightened already strong levels of competition and potentially furthered affordability concerns, and that could have had a negative impact heading into the end of the year. While most Australians will be enjoying a punt today, the RBA decided to make the safer bet and hold tight.”
Latest figures from the Australian Bureau of Statistics showed inflation running at 1.3 per cent in the September quarter, below the target range of 2 to 3 per cent.
AMP Capital chief economist Dr Shane Oliver said while September quarter inflation figures were low, they were in line with the RBA’s own expectations.
“Economic growth in Australia looks reasonable with the worst of the mining investment slump behind us and a rise in commodity prices is starting to boost national income again,” Dr Oliver wrote in a client note.
The RBA can “afford to be patient” in waiting for inflation to head back to target, thereby avoiding the risk of adding further instability in the form of house price acceleration in Sydney and Melbourne with another rate cut, he said.
Graham Cooke, insights manager at comparison website Finder.com.au, said another cut wasn’t likely until next year.
“A few months ago a November rate cut looked likely, but promising inflation data, solid house price growth in the capital cities, and robust employment figures have diminished the likelihood of another rate drop this year,” he said.