Published: 03/09/2020

Photo: James Alcock/Fairfax Media

The Reserve Bank of Australia has again held the cash rate at 0.25 per cent at its September meeting on 1st of September, which is a vote of confidence in the economy.

While this should provide some support for the property market, other factors are leading to flat conditions heading into the spring selling season.

Property group PRD’s economist Diaswati Mardiasmo says one of the reasons why the RBA has held the cash rate is to provide a sense of stability in the economy.

“Expansionary monetary policy such as cutting the cash rate is used to assist the economy when it’s declining in health. The RBA cutting the cash rate further may impact consumer confidence as it signals the economy is in trouble,” says Mardiasmo.

The RBA’s decision to hold the cash rate at 0.25 per cent means interest rates on loans will remain stable, which will help many households and businesses manage their cash flow.

“This means businesses are able to keep operating at current levels, ensuring stable or increasing employment and contributing to a healthier economy outlook,” she says.

AMP Capital senior economist Diana Mousina says the cash rate setting is appropriate for the moment. But the RBA may need to reduce the cash rate in the future to support the post-COVID-19 pandemic economic recovery.

“The central bank used a lot of its firepower in March when it cut the cash rate to 0.25 per cent, introduced a three-year yield target of 0.25 per cent and announced a cheap funding facility for banks,” she says.

Subsequently, the pressure has been on the federal government to supplement falling household incomes through JobKeeper and JobSeeker and provide financial assistance to households through new policy options like early access to superannuation.

“So for now, the Reserve Bank has probably done enough to keep monetary conditions very easy for households and businesses. But, looking ahead, more support is likely to be needed for the economy as GDP growth is unlikely to get back to pre-COVID levels for another two years,” says Mousina.

The RBA has also extended the size of the term funding facility and extended banks’ access to low-cost funding until the end of June 2021.

More support from the RBA is likely to come via more bond purchases, which could start in early 2021.

This article was originally published by domain.com.au on 1 September 2020. Written by Alexandra Cain