Reserve Bank holds cash rate but grim outlook for borrowers and renters
- All 31 experts in finder.com.au Reserve Bank Survey unanimously predicted no change to cash rate today
- Property prices and interest rates set to rise
- Renters not immune: rents expected to rise by almost 3%
August 4, 2015, SYDNEY, AUSTRALIA – While it was expected that the Reserve Bank would keep the cash rate on hold at today's board meeting, all eyes are on investment lending as new research by one of Australia’s biggest comparison website finder.com.au shows rents are expected to rise by 2.8 percent.
The finder.com.au monthly Reserve Bank Survey found all 31 leading economists and experts unanimously predicted the cash rate would hold at 2.00 percent today (August 4, 2015). Many of the experts felt that the last two cash rate cuts in February and May need more time to filter through the economy.
The Survey also found that almost one in five (19 percent) of the experts are forecasting another cash rate cut this year. Despite this, the majority of experts surveyed (21 or 68 percent) are expecting property prices will keep rising this year.
What's more, interest rate hikes are on the horizon, with over half of the experts surveyed (17 experts or 55 percent) forecasting the cash rate will start rising next year while two are expecting the cash rate to rise as early as the end of this year.
Michelle Hutchison, Money Expert at comparison website finder.com.au, said renters will not be immune to higher housing costs.
"For the majority of households who don't have a mortgage (about five million households or about two in three – two million of which are renters), it's not looking good for many of them either as new research by finder.com.au suggests monthly rents could be set to increase by nearly 3 percent nationally as Australian banks increase rates on some of their investment loans.
"The big four banks announced increases to some of their investment home loans following new APRA guidelines. ANZ, Commonwealth Bank and Westpac all announced 0.27 percentage point increases to their investment standard variable rates while NAB is increasing its investment line of credit and interest-only loans.
"With the big four banks holding majority of the market, national monthly rents could be set to increase by 2.80 percent or $59 in higher rent per month if landlords pass on the full cost of the new interest rates on investor loans (based on the average home loan of $343,000 over 30 years).
“For low income households with one person on the minimum wage, this increase could account for 2 percent of annual income (based on the national minimum annual salary of $34,158.80/$656.90 per week).
“Melbourne renters are expected to be hit the hardest with a 3.19 percent increase ($62 per month), followed by Adelaide with a 2.98 percent increase ($48 per month) while Sydney will see the biggest jump in cost of $71 per month.
“Whether you’re a mortgage holder, renter or prospective first home buyer, watch out for higher costs on the way and make sure you are prepared by keeping some savings aside before it’s too late.”
What our experts had to say in the finder.com.au Reserve Bank Survey:
- Garry Shilson-Josling, AAP: “The RBA knows the economy is slow, but it's not because interest rates are too high.”
- Shane Oliver, AMP: “Not enough has changed since the last meeting… There is not a national housing bubble, but there is one in Sydney and it will start to reverse in 2017. House prices generally are likely to fall (probably only 5-10%) around 2017 when or if interest rates start to rise.”
- Steven Pambris, Bank of Sydney: “Whilst the economy remains weak, the values of residential properties continue to rise, with inflationary pressures now also evident.”
- David Bassanese, BetaShares: “Unemployment is trending sideways to down of late.”
- Michael Blythe, Commonwealth Bank: “The Reserve Bank is in 'wait and see' mode.”
- Savanth Sebastian, Commsec: “It is pretty clear that Inflation is not a threat to rate movements in either direction. RBA will wait to see if improvements in business confidence translates through to a lift in investment and employment.”
- Andrew Wilson, Domain Group: “There is better jobless data, along with a lower dollar, low inflation and growing Sydney house prices.”
- Mark Brimble: Griffith University: “There is a continued volatility in global markets fueled by geo-political concerns, a weakening China and the prospect of a U.S. rate rise and a robust Australian dollar, and [the] property market should have the Reserve Bank on the fence again. Property prices will be impacted if unemployment rises and also if APRA continues to intervene in the credit market.”
- Paul Williams, Heritage Bank: “The Reserve Bank [is] happy to wait for guidance from further economic data releases before making a move.”
- Shane Garrett, Housing Industry Association: “Recent comments by Governor Stevens indicate that a move next week is unlikely. The two rate cuts in February and May are still working their way through the system.”
- Paul Bloxham, HSBC: “The labour market is improving.”
- Michael Witts, ING Direct: “The exchange rate has started to move lower and this will lessen the pressure for further Reserve Bank cuts for the moment as broader sectors of the economy benefit from the lower exchange rate.”
- Grant Harrod, LJ Hooker: “Some heat is expected to come out of the Sydney property market over the next few months as banks begin to tighten lending to investors. This will come as a relief to the Reserve Bank. This, combined with a softer Australian dollar, gives the Reserve Bank time to take stock of market movements and wait until further data provides a clearer indication of how the economy is tracking.”
- Stephen Koukoulas, Market Economics: “Policy is already stimulatory and there are a few snippets of positive news which point to a moderate pick-up in economic activity in the latter part of 2015.”
- Peter Jones, Master Builders Australia: “Interest rates are on hold for an extended period.”
- John Caelli, ME Bank: “With concerns about property prices remaining the Reserve Bank will need a strong case to further ease the cash rate. That case doesn’t currently exist with the key metrics of employment, inflation and the outlook for growth sufficiently benign to allow the Reserve Bank to wait for further data.”
- Mark Crosby, Melbourne Business School: “The Grexit seems to have been averted, and there is nothing else on the immediate horizon to make the Reserve Bank move either way. I don't think that any answer to the question on Australia's property market is accurate - property prices are stretched, despite crazy Reserve Bank papers to the contrary. But strong population growth is likely to underpin modest declines or growth in house prices in the medium term.”
- Neville Norman, Melbourne University: “The economy is currently in a catch 22.”
- Katrina Ell, Moody’s Analytics: “The Reserve Bank is expecting further depreciation to come from the lower exchange rate rather than rely on additional interest rate cuts.”
- Lisa Montgomery, Mortgage & Consumer Finance Expert: “The Reserve Bank [is] in no hurry to lower the official cash rate further, but have not taken further cuts off the table. They would clearly like to see the Australian dollar decrease further – and remain concerned about what we can now call the 'consistently' active property markets in both Sydney and Melbourne. Most consumers remain cautious however, and although the opportunity to spend exists, many are making the choice not to. Record low interest rates, while a great incentive to spend, may also be having a negative effect on confidence as we move into unchartered 'low rate' territory.”
- Ken Sayer, Mortgage House: “There is no reason to implement a change.”
- Jessica Darnbrough, Mortgage Choice: “Despite the fact that core inflation remains firmly within the bottom half of the Reserve Bank of Australia's 2-to-3 percent target range, giving the Board room to move rates if needed, we believe the cash rate will be left on hold for another month at least.”
- Chris Schade, MyState Bank: “The Reserve Bank is clearly in a wait and see mode. Whilst there have been very few signs of economic improvement over the past couple of months, it remains our view that the most likely outcome is a cash rate on hold through 2015 as the RBA takes time to see how the economy develops.”
- Alan Oster, NAB: “The Reserve Bank is still waiting to see results of previous actions.”
- Peter Boehm, onthehouse.com.au: “I would be very surprised if there was movement in either direction with the Reserve Bank's August cash rate announcement. It’s too early to start increasing rates and I cannot see the economic or financial justification for further rate cuts at this point. I think (hope) we'll see some interest rate stability over the coming months.”
- Linda Janice Phillips, Propell: “It is line ball, with the benign Consumer Price Index figure offset by a lower U.S. dollar trading range. In the absence of further drama over Greece, it is likely that the Reserve Bank will hold until September and await further data before considering the next rate cut. The sharp fall in the exchange rate against the U.S. dollar will please the RBA, but it is mostly due to an appreciating U.S. dollar against all currencies: the Canadian and New Zealand dollars are also down. The U.S. dollar is strengthening partly due to confirmation by the Fed that interest rates will start rising by the end of the year, and partly on a flight to quality from the Euro. While the market expects the Australian dollar to continue to trend down, I consider that rapidly rising resource exports in volume terms, and the end of the easing cycle, will see it reverse and start to appreciate by the end of the year.”
- Jonathan Chancellor, Property Observer: “The Reserve Bank Governor virtually advised as such – no change for the time being. Sydney price growth should sooner or later ease, but it is unlikely that true medians will head into negative territory. Individual prices might decline, but medians ought not. Price growth must sensibly come back to well under the heady growth at the moment.”
- Matthew Peter, QIC: “The cash rate is at hold. Core inflation still within the range. Housing market still hot. Impact of lower Australian dollar still to pass through economy.”
- Noel Whittaker, QUT Business School: “There is no strong reason to change the cash rate yet.”
- Nicki Hutley, Urbis: “Messaging from the Reserve Bank has been quite clear; there is no strong case for rate adjustment - in either direction - for the time being. Further data reads - particularly for labour force and investment - will provide clues to the next move.”
- Bill Evans, Westpac: “The minutes of the monetary policy meeting of the Reserve Bank Board provided no real surprises from the perspective of the policy outlook... The outlook for dwelling investment remains strong while house prices continue to grow rapidly in Sydney and to a lesser extent Melbourne. At this stage there was no evidence that the regulators’ greater scrutiny of investor housing was affecting growth...We are currently looking for some modest improvement in growth in 2016 back towards around 3%, a level that would likely maintain steady rates. Accordingly we maintain our call that rates will remain on hold over the course of 2015 and 2016.”
Please note: the above respondents are ordered alphabetically by name of organisation. Comments collected between July 22 and 24, 2015.
Disclaimer: the comments, forecasts, projections and other predictive statements by the panel of experts are assumptions based on currently available information. These forecasts are based on industry trends and economic factors that involve risks, variables and uncertainties. No guarantee is presented or implied as to the accuracy of these forecasts and consumers are advised to read product disclosure statements and understand if financial products are right for them before signing up.
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