The Reserve Bank of Australia's (RBA) board meeting for March has produced positive results for current home owners and prospective buyers, after the rate was left stable for another month.
At its meeting yesterday (March 4) the RBA board decided to leave the cash rate unchanged at 2.5 per cent, citing slow global economic growth and a predicted rise in unemployment in Australia.
"Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate," said RBA Governor Glenn Stevens in a March 4 statement.
Mr Stevens noted that the board found it prudent to leave the rate stable in order to "foster sustainable growth in demand" and keep inflation aligned with the target. This is the seventh consecutive month the cash rate has remained stable, helping to fuel the Australian economy and property purchases over the period.
Housing a strong economic driver for Australia
Despite "below trend" growth in the global economy, Australia has seen some improvement in recent months, likely spurred on by low interest rates. This was evident in improved levels of consumer demand, which in turn "foreshadows a solid expansion in housing construction".
In fact, the Housing Industry of Australia (HIA) recently predicted that the industry will be one of the "good news stories" of 2014 after forecasting over 165,000 dwelling commencements and a rise in residential construction investment in the country over the next 12 months.
Furthermore, some industry experts predict the official cash rate will stay unchanged for some time, leading to a longer period of accommodative financial conditions. HIA Economist Geordan Murray said in a March 4 statement that it is "likely that rates will remain on hold for some months yet".
This was echoed by Real Estate Institute of New South Wales President Malcolm Gunning, who said the RBA's decision this month was not surprising.
Interest rates drop
While the RBA left the cash rate unchanged, lenders have actually begun to drop their interest rates, according to Loan Market. In a March 4 statement, Director Mark De Martino said a major bank has dropped its fixed interest rate to a 20-year low. As lenders tend to adjust their interest rates based on RBA cash rate decisions and predicted market movements, it appears that lenders are confident there is another reduction on the horizon.
"The fact that this announcement was made just before the March RBA announcement, shows how confident some lenders are that rates will eventually drop again," said Mr De Martino.
