Australian cash rate on hold

Bank mortgage rates, home prices and implications for investors

The RBA provided no surprises following its April board meeting leaving the official cash rate on hold at 1.5%.The RBA remains more confident regarding global growth, sees Australian economic growth as moderate, regards the labour market as being mixed, sees a gradual rise in underlying inflation and continues to see conditions in the housing market as varying considerably across the country, but sees recent regulatory measures as reducing the risks associated with high and rising household debt. This note looks at the outlook for the cash rate, the impact of bank rate hikes and the implications for investors.

Key points:

  • The RBA has left interest rates on hold. The arguments to cut or hike rates are evenly balanced and we can’t see an official rate hike until second half 2018.
  • For the RBA to hike rates just to slow the Sydney and Melbourne property markets at a time of softness elsewhere would be madness.
  • But various threats to the hot Sydney and Melbourne markets are growing and point to slowing price gains.
  • For investors: bank term deposits offer poor returns; remain wary of the $A; and shares, commercial property and infrastructure continue to offer attractive yields.

Read the full article by Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital.

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