The Reserve Bank of Australia yesterday announced a further hold on low cash rates for the thirteenth consecutive month
Online PR News – 20-September-2014 – Perth, WA In a statement following the September board meeting, RBA governor Glenn Stephens announced that interest rates would remain at a historic low of 2.5%.
The value of the Australian dollar increased rapidly due to heavy investment in the mining boom earlier this year, and the RBA believes the currency is now overvalued. High levels of unemployment are also having negative effects on consumer confidence.
However, Mr Stephens pointed to continuing growth in the property market and increasing rates of residential construction as signs that the RBAs interest rate strategy is working.
Low Interest on Home Loans
One of the key objectives of the low interest rate strategy is to increase confidence among home buyers. Demand in the property market remains strong, with clearance at property auctions consistently around 60 to 70%.
The prospect of low interest on home loans provides an incentive for first time buyers to enter the market, and homeowners to consider movement or re-financing.
Fixed-rate loans are especially attractive under these conditions. Fixed interest rates offered by Australian lenders have decreased rapidly this year, but may now have reached their lowest level.
Weve now hit the bottom of the current fixed home loan rates cutting cycle if youre thinking about fixing now is definitely the time to do so, said Kirsty Lamont of the insurance comparison website Mozo.
Experts Dispel Housing Bubble Fears
High levels of domestic and foreign investment in Australian property have prompted fears of a housing bubble from many property market observers. Average house prices across the country have risen 10.1% in the year to the second quarter of 2014.
However, several of the countrys leading bank economists have highlighted the absence of key elements that might signal the existence of a housing bubble. Bill Evans, chief economist at Westpac, stated that house prices have increased in line with incomes, suggesting stable growth.
Meanwhile, Warren Hogan of ANZ and Michael Blythe of the Commonwealth Bank of Australia pointed to the lack of risky speculative credit.
Interest Rate Stability
Mr Stephens once again stated the RBAs position that a period of interest rate stability is the best course of action in re-balancing the Australian economy. Low interest rates should lead to controlled inflation, reducing the exchange value of the Australian dollar in line with estimates of its fundamental value.
Experts believe that the cash rate will remain low for several months. The RBA is unlikely to do anything with interest rates until the middle of next year, said HSBC chief economist Paul Bloxham.
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