ECONOMY

RBA makes final cash rate call for 2016

December 6 2016
RBA cash rate

The Reserve Bank of Australia (RBA) has left the official cash rate on hold at 1.5% following its final meeting of 2016.

A decision that was widely predicted by economists across the country, the RBA has left the official cash rate at the historic low of 1.5% for the fifth consecutive month.

“The overwhelming expectation ahead of today’s meeting was that the key interest rate would remain untouched – and that’s exactly what we got,” explained HIA Senior Economist, Shane Garrett.

“There are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates,” said Tim Lawless, head of research at CoreLogic.

Furthermore as rate cuts in May and August spurred on investment activity, a repeat of this could further incentivise investors which may push house prices even higher, Mr Lawless added.

“Accordingly, we can look forward to entering 2017 with a record-low official cash rate. Unfortunately for home buyers, some of Australia’s mortgage lenders have moved to increase their mortgage interest rates over recent weeks,” commented Shane Garrett.

“By hitting investors with higher rates, the banks risk exacerbating the slowdown in residential construction that is already underway,” cautioned Shane Garrett.

“With interest rates in the US likely to rise later this month, there is a strong possibility that the era of RBA interest rate cuts is at an end. The cash rate could well hold steady right through 2017 – assuming there are no major gyrations in the dollar’s exchange rate,” Shane Garrett concluded.

Source: Media Release, HIA, “No Christmas Surprises from RBA and Article, Australian Broker, “RBA makes December cash rate call”

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