RBA Willing To Extend Necessary Rate Cuts

The outcomes of the Reserve Bank’s February meeting revealed that the central bank thought it wise to leave the cash rate at 3% because of a more positive outlook for the economy in the coming months, but it also sent out the message that they had not ruled the possibility of further rate cuts out, should it become necessary.

The release of the meeting minutes showed that the general consensus for the global economic future was more positive than for the December meeting and sentiments of instability appear to have eased off. In a statement the RBA said that some of the economy’s more sensitive areas had shown some signs of resurgence in response to the rate cuts and that more benefits could still be coming. Furthermore, data from the Chinese market showed that growth looked stable after a soft start to the year. Despite an industry activity pick up, bulk commodity prices went up but experts do not expect the increases to be sustained.

Also positive was the news that iron ore prices had increased over the last two months, an increase in demand from China because of the uptick in industrial activity.

The RBA also acknowledged that growth in China, the country’s biggest trading partner, was solid. A spokesperson for the RBA said that after a year of looking out for signs of improvement China had shown positive growth across a wide range of indicators.

On the local front the economy seemed to send mixed signals with inflation pegged to stay in line with the forecasted 2 to 3%. An increase in activity for resource exports and a new sense of improvement in the home loan market has some economists feeling optimistic about the financial future. Of concern, however, are signals that investments in non-mining companies would remain stagnant in the short term.

One of the positives is the inflation outlook, giving space for policies to be relaxed in order to generate more demand.The RBA has reneged on earlier predictions for economic growth and pulled it back to 2.5% for 2013 and increasing to 3% for 2014. The forecasts mean that growth will be one percentage point slower than it was in 2012.

The cost of homes is now at its most affordable in the last ten years and capital growth is expected to accelerate in 2013. It is important news that has consequences for buyers and sellers, developers and builders. And, up until the middle of last year, sceptics did not want to accept that 2012’s rate cuts had achieving anything in sparking thehome loans industry back into life. However, eased terms and conditions on home loans from lenders such as Bankwest are potentially proving them wrong.

Similarly, in July last year some critics blatantly rejected figures that showed how house prices were climbing. And, when you consider that 60% of household wealth is held in property it becomes clear why the debate is so important.

Homes in Melbourne and Sydney, according to the monthly index released by APM, have shown respective annual increases of 7 and 6% since June 2012. The index conducted by the ABS does not include apartments and is also only calculated every three months and has shown much more modest increases. Even so, it is clear that house prices were increasing in the second half of 2012.

The hedonic index, which reflects on property type change and renovations, revealed that house prices in the eight capitals have been growing at 6% per annum, since the middle of 2012, a rate faster than disposable income and wages have been able to grow at.

Right now RBA data suggests that the ratio of home loan repayments to disposable income, are at the lowest they have been in decades, and now is as good a time as any for potential buyers to enter the market.

Add Comment