With the Reserve Bank of Australia (RBA) still assessing the effects of previous rate cuts, the central bank decided to leave the official cash rate on hold at a historical low of 2.75%.
The RBA last cut the cash rate – by a quarter of a percentage point – in May, having made four cuts in 2012.
At the RBA board’s July 2 meeting, governor Glenn Stevens said global financial conditions “remain very accommodative”.
“The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time,” Mr Stevens said.
“The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.”
The Australian dollar remains at a relatively high level; however, it is expected to depreciate further in coming months.
According to research conducted by the Housing Industry Association (HIA), the Reserve Bank’s decision to cut the official cash rate in May combined with sharp reductions in the price of Australian-produced commodities like iron ore and gold has impacted demand for the currency.
As such, economic forecasters expect the dollar to fall to somewhere between 70 and 80 US cents by the end of the year, which the HIA believes will represent a benefit for the Australian economy.
“Exports will generally increase, due to the fact that Australian products are cheaper for overseas buyers,” an HIA statement said. “Similarly, imports will tend to fall because they become relatively expensive compared with domestically produced products.
“The balance of domestic demand will also tend to swing away from imports and will benefit local manufacturers, including those supplying materials to the building industry. The wider recovery in demand across the economy is also likely to benefit sectors like new home construction and renovations activity.”
Record low interest rates have been driving confidence in the property market, with new data from the Australian Bureau of Statistics (ABS) indicating that property investment is on the rise.
The latest housing finance figures from the ABS show the value of investment home loans rose by a seasonally-adjusted 1.1% to $81.4 billion in April 2013, suggesting investor confidence in the property market may be rebounding.
Empire Property Portfolios’ CEO Chris Gray believes that low interest rates have given the market a welcome boost in confidence: “With interest rates currently at 53-year lows, an increasing number of investors may be seriously considering their next property purchase,” Mr Gray said.
Whether you’re looking to invest or want to take your first steps into the property market, now is a great time to consider your options and shop around – many competitive interest rates are available.
If you would like to discuss any of the topics outlined in this newsletter, or simply want to chat through your financial options for the month ahead, contact us.
