December RBA interest rate decision: Cash rate on hold at record low 0.1 per cent
![December RBA interest rate decision: Cash rate on hold at record low 0.1 per cent](https://www.home789.com.au/wp-content/uploads/17ac8b6c64a611a5ea35a8d0bc68d3f4_gumfff.jpg)
Published: 11/12/2020
The Reserve Bank of Australia has held the official interest rate at its record low of 0.1 per cent, it has announced after its December meeting.
That comes as no surprise, with property prices rising 0.8 per cent across the country in November as the housing market nationally continues its better-than-expected bounce back after last month’s rate cut.
“That interest rate cut – and probably more importantly the RBA’s announcement of its $100 billion program of quantitative easing – has had an impact on the housing market, as well as the good news about a COVID-19 vaccine giving everyone more confidence,” said Dr Shane Oliver, chief economist at AMP Capital.
Economists aren’t too worried that the continuation of the 0.1 per cent interest rate will add too much fuel to the housing market at the moment, says Domain Group senior research analyst Nicola Powell.
On the other side, falling rents are deterring a lot of investors from buying, despite cheap mortgages, and the fall-off in population growth could dilute demand.
“The historic low interest rates are providing a boost to the housing market and adding more affordability, particularly for first-home buyers and upsizers reaping the benefits,” said Dr Powell.
“But it’s not as concerning as it might otherwise be in an environment where population growth was as high as it was in the past.”
The RBA clearly foreshadowed that the rate would stay the same this month, with no further drop in the interest rate likely soon, believes ANZ head of Australian economics David Plank. It was keen to lower it previously to bring down Australian bond yields relative to other countries, but the gap is closing.
“Now you’ve got four-year mortgages for less than two per cent which is an important part of the story where the housing market is showing signs of recovery quite quickly,” said Mr Plank. “Together with the quantitative easing and all the stimulus from governments, it’s been doing better than we all thought.
“The ANZ forecast for the September quarter GDP is that it’ll grow by three per cent which would be the strongest quarterly result since 1976 – although that’s off the back of one of the biggest falls in history. But the rebound is better than expected, and that three per cent growth would be despite Melbourne and Victoria’s lockdown.”
With the interest rate on hold, the prospects of changes in stamp duty and income tax are also giving people more confidence in the housing market, underscored by the labour market performing better than expected.
“Clearly, low interest rates are one of the main factors that are propelling housing values higher at the moment,” said Tim Lawless, head of research, CoreLogic Asia Pacific. “With mortgage rates coming in low too, now I’m not surprised to see borrowers opting for fixed rates over variable because they’re often a point lower.
“The rebound in confidence is almost palpable looking at different indices of consumer sentiment, with the labour market coming back and mortgage-payers going back into repayment schedules more swiftly than expected.”
At the Property Council of Australia, chief executive Ken Morrison couldn’t be happier with the RBA holding the rate steady and saying that’s likely to be the case for the foreseeable future.
“Expectation-setting is important and people are being given confidence knowing that these low rates will be with us for a long period of time,” he said. “The RBA is playing a very supportive role and, together with the government stimulus and the controlled COVID-19 situation, there’s tremendous confidence around.”
This article was originally published by domain.com.au on 01st December 2020. Written by Sue Williams