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Strong property price growth in Sydney and Melbourne combined with the Greek economic crisis encouraged the Reserve Bank to leave the cash rate on hold, says Mortgage Choice CEO John Flavell.
The RBA announced yesterday at its monthly board meeting that it would leave the cash rate at a record low of 2.0 per cent for the third consecutive month – a decision that Mr Flavell said “made sense”.
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“If rates were cut, property prices could climb even further – a fact the Reserve Bank is acutely aware of,” he said.
“As such, it makes sense for them to leave rates on hold and hope that the changes being made by the banks to investment lending policies will be enough to help slow investor demand and, in turn, property price growth in both Sydney and Melbourne.”
Mr Flavell said the ongoing economic turmoil in Greece would have further encouraged the Reserve Bank to keep the cash rate on hold.
“Following Greece’s ‘no’ vote at its recent referendum, the Australian dollar has plummeted, hitting its lowest level since 2009,” he said.
“With this in mind, there is no immediate reason for the Reserve Bank to cut rates.”
But while the RBA decided that no rate change was the best course of action for now, Mr Flavell said future rate cuts still cannot be ruled out.
“The Reserve Bank is likely to take a ‘wait and see’ approach to rates. They will continue to closely monitor the problems in Greece, as well as the local economy, consumer sentiment and property price growth in Sydney and Melbourne,” he said.
“If any of these areas give them cause for concern, they will not hesitate to pull the rate lever. They have done it before and there is nothing to stop them from doing it again this year.”
[Related: Mortgage Choice seeks feedback on affordability]
