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The Reserve Bank of Australia has announced its decision to leave the official cash rate unchanged at 0.25 per cent this month, as the industry muses on what the future holds for interest rates.
Mortgage Choice CEO Susan Mitchell noted that the decision to hold the cash rate came as “no surprise”, as the RBA has made their intentions to maintain the current low-interest rate environment and has “ruled out” the concept of reducing to negative interest rates.
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Ms Mitchell noted that low interest rates, steadily improving consumer sentiment and Australia’s robust housing market are all conducive to a strengthening economy and will likely result in the RBA remaining unwavering on rates.
“I expect that for the foreseeable future, the Reserve Bank will continue to monitor how the economy progresses following the raft of emergency measures it put in place in response to the pandemic before changing its stance on monetary policy,” Ms Mitchell said.
“Unless there is a significant deterioration, or conversely a significant improvement in key economic indicators, the RBA is expected to continue on its path of quantitative easing and targeting the three-year bond rate, keeping the cash rate stable.”
Meanwhile, John Kolenda, managing director of aggregation group Finsure, stated that further economic stimulus from the government would be necessary in achieving a strong market rebound in Australia following the COVID-19 pandemic, and in the absence of this, the RBA will be forced to consider negative rates.
Later this week, the federal government is expected to announce a range of new stimulus measures to provide long-term support to the residential property sector, including construction. However, the details are yet to be announced.
Mr Kolenda noted that a sizable increase to the Commonwealth’s first home buyers’ grant was a key plank to buoy a sluggish housing sector during the global financial crisis in 2008, with the grant being temporarily doubled in October 2008 to $14,000 for established homes and trebled to $21,000 for new properties.
“That stimulus resulted in an increase of 300,000 inquiries from first home buyers at the time – one of the greatest uptakes in history – which produced a positive flow-on effect for the entire housing market that benefitted the whole economy,” Mr Kolenda said.
“I applaud the fact that something similar is being considered to counter the economic impact of COVID-19.”
Mr Kolenda said official interest rates were likely to stay on hold for the time being until more economic data provides a better picture of the COVID-19 fallout. However, he stated that the RBA may reconsider its stance on moving rates into negative territory, in order to take pressure off the Australian dollar and enable banks to lower their lending rates.
“But should the government provide appropriate and adequate stimulus to segments of the economy that drive growth, then that would negate a further easing, which in itself has negative outcomes,” Mr Kolenda said.
“Government stimulus is the main weapon to combat the impact of the virus, and the more than $200 billion committed so far has been crucial in helping the hundreds of thousands who have lost jobs and businesses, and maintain some economic activity.
“Other measures currently circulating include stamp duty reform, abolishing payroll tax and increasing GST, which could help drive employment and help ease the nation’s debt burden.”
[Related: RBA maintains status quo amid calls to consider cuts]
