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Interest Rate Announcement

By Eleanor Hopkins

Interest rates remain steady over August

• Official rate to continue at current level
• Latest economic news indicates shift towards easing bias
• Winter housing markets remain generally robust
• Mixed economic performance clouds the rates outlook for the remainder of 2014

The Reserve Bank continued with its steady approach to interest rate settings announcing that official rates will remain on hold over August. The previous movement on official interest rates was August last year when rates were cut to the current 60 year low of 2.5 percent.

Although official rates have been hold for the past year, mortgage rates have continued to fall with the major banks recently cutting fixed rates to below 5 percent.

Although rates remain on hold latest economic data provides a cloudy outlook for rate settings with a shift towards an easing bias. Unemployment increased over June, building approvals fell, retail sales were modest at best and the dollar remains stubbornly high. Although March inflation increased slightly above expectations it nonetheless remains within the Banks preferred range.

Low interest rates continue to fuel winter housing markets with continued solid prices growth recorded in most capitals. Auction clearance rates have risen over recent weekends in both Melbourne and Sydney, with the Sydney market continuing to be fuelled by record levels of investor activity. High levels of winter home buyer activity will likely to flow into the spring market with buyer and seller confidence remaining firm.

Although a steady policy remains the most likely path for official rates over the reminder of 2014, the macro environment has weakened slightly and if the recent trend of declining economic activity continues the likelihood of a pre-Xmas cut will increase.

Dr Andrew Wilson is Senior Economist for the Domain Group.

Source: Domain Group

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