Those in the Know
As was expected, the Reserve Bank of Australia held the cash rate at 0.1 of a percentage point in April. You no doubt recall that the RBA decided to cut the rate to a record low in November 2020.
Lower interest rates than ever before have sparked a price war between the Big Four banks.
What do the RBA’s decisions mean to buyers and sellers of real estate?
It is fair to say that holding the cash rate stabilises consumer confidence. Confident people continue to buy and sell in the property market.
Economic conditions are challenging for many at present, but borrowers are benefiting from a long-term low-rate environment because the interest rates they are paying are also low.
The RBA has said on several occasions that the cash rate will likely remain as it is until 2024 at the earliest.
Commentators say the RBA has injected a lot into Australia’s financial system and put our economy firmly in recovery mode as a result. However, this is tempered by reasoning that while inflationary pressures are good for the economy, they need to be kept in check. It’s suggested that we could be well on our way to a full recovery if there was evidence of sustained improvement in unemployment rates through the broader labour market.
Another view is that if the economy surpasses expectations of growth and employment, the RBA might have to act before 2024.
Everyone is keeping a watchful eye on things like continued lockdowns, disappearing safety nets, the painfully slow vaccination roll-out, employment rates and general business confidence.
I think the RBA will especially want young people to able to see their property ownership prospects as more than a pipedream, so they might want to move before the 2024 target if they register no wage growth but still spiralling house prices.
All a bit of a guessing game for you and me perhaps? We can only trust that those in the know, know – and act accordingly!
The RBA oversees this country’s monetary policy in order to achieve its objectives of price stability, full employment and the economic prosperity and welfare of the Australian people. That’s the official summary for you.
Banks take the cash rate into account when deciding their lending policies, so it is a good idea for the property investor to be familiar with cash rate activity and know how it might affect the rates they pay on their loans as well as any impact movement may have on the economy in general.
SOURCE: RE/MAX Australia
