The Reserve Bank of Australia (RBA) decided to leave the nation’s official cash rate unchanged at 1.50%, but markets are pricing in a 90% probability of a rate cut by August— which adds pressure on the RBA to change its long-held stance on monetary policy.
“The [cash rate’s] function as an anchor to lenders’ interest rates shifted over 2018, as lenders were forced to respond to higher funding costs,” said Susan Mitchell, chief executive officer of Mortgage Choice.
The central bank considers a range of global and domestic economic factors when making its monetary policy decisions. During the US Federal Reserve’s meeting in March, the Fed took a dovish stance on monetary policy, opting to keep the Fed funds rate at 2.25-2.50%. Fed Chairman Jerome Powell suggested that there would be no rate increases in the near term due to ongoing economic expansion in the US.
The monetary policy meeting last month also revealed that trade tensions continue to weigh on the global economic outlook. RBA members reported that labour market conditions have been improving in the country, and the bank continues to monitor the weakening housing market. Sydney and Melbourne have been the centre of attention, with their dwelling values falling 13% and 10%, respectively, since their peaks.
The most recent CoreLogic Hedonic Home Value Index showed that national dwelling values fell by 0.6% over March and have fallen by a cumulative 7.4% since peaking in October 2017.
Strict lending practices brought about by the banking royal commission continue to play a part in the slowing property market, according to Mitchell.
The slowdown in the nation’s economic growth would also be an issue to RBA board members, as recent data showed weakening GDP growth, driven in part by declining dwelling investment.
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