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Rates hold eleven months in a row

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The Reserve Bank of Australia (RBA) has made its monthly cash rate call, deciding to hold the official rate at 1.5% for the 11th month running. This decision was widely expected by all economists and commentators. Mortgage Brokers were also fairly confident in a hold call with a survey finding that 88% of more than 440 brokers thought rates would remain steady in this month.  However, there is a developing consensus that this will be the last hold call with 90% of economists in a recent poll saying that the next rate move would be a rise. 

The housing market is showing signs of slowing with CoreLogic’s home value indices reporting a 0.8% rise in dwelling values over the June quarter – the lowest quarterly rate since December 2015. A controlled slowdown in housing market conditions is providing some comfort for policy makers that new macro-prudential constraints are working to cool the high rate of capital gains in Sydney and Melbourne.

Higher mortgage rates for investors have done much of the heavy lifting in slowing down home value appreciation and cooling investment demand. There is an expectation that mortgage rates will continue to rise, despite a steady cash rate setting, as lenders adjust their credit policies to accommodate the latest round of APRA mandates.

If this happens, we should expect investment activity will continue to moderate across the national housing market which may dampen conditions further. Slower housing market conditions and improvements in employment markets are certainly positive outcomes, however if wages growth and inflation remain subdued we can expect the cash rate to remain on hold over the short term.

With month-to-month property prices moderating, falling unemployment rates and anaemic business growth, it is fairly easy to see why the RBA kept the cash rate on hold, he said. But while the cash rate remains untouched at 1.5%, Australia’s lenders continue to tweak their pricing and policy.  In the last week alone, we have seen a number of the major lenders increase their interest only pricing. Moving forward, it's reasonable to expect the price gap between principal and interest loans and interest only loans widen.

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