Reserve Bank of Australia keeps interest rates on hold in March

3 Mar 2015 - 4:18pm Homeowners warned over future rates rises Today's rate decision on Australia's property market would be a boost to sentiment, the Real Estate Institute of Australia says. Residential and commercial buildings in Sydney Today's interest rate decision will increase sentiment in Australia's property market, but people in debt should beware of future rises, the Real Estate Institute of Australia says. By Jason Thomas 3 Mar 2015 - 3:58 PM UPDATED 8 MINS Today, the Reserve Bank of Australia (RBA) surprised economists by holding interest rates at 2.25 per cent. The RBA's decision will benefit Australia’s residential property market, the Real Estate Institute of Australia (REIA) says. REIA president Neville Sanders said stability would boost to sentiment. “Certainly existing home owners will find these stable rates welcome and new entrants to the market will also find that climate of stability important,” Mr Sanders said. “We do, however, recommend that new borrowers shouldn’t overstretch themselves.” He said interest rates are at an historic low now, therefore, people should expect rates to go up in future. Mr Neville said some pockets of Australia’s residential property market were facing greater demand than others, adding to price pressure. “There’s some pockets of markets, in particular Sydney and also Melbourne… they’re very strong and growth is very high at the moment,” Mr Neville said. However, in other markets like Australia’s regional areas, growth is more subdued. The disparity would continue since the price of property in Sydney and Melbourne, where many Australians want to live, was subject to higher demand, Mr Sanders said. ===== Reserve Bank of Australia keeps interest rates on hold in March SONJA KOREMANS WITH WIRES News Corp Australia Network March 03, 2015 2:16PM Despite the rate pause, the RBA was not short of reasons to reduce rates today, amid further signs the economy is deteriorating. THE RBA has kept rates steady, despite further signs the economy is deteriorating. The central bank’s decision to hold the cash rate at 2.25 per cent after last month’s cut is likely to be based on fears that a further discount would add fuel to property prices. The RBA debated the problem of skyrocketing house prices on February 3, according to minutes of their last meeting, before deciding to cut rates for the first time in more than a year and a half. The nine-member board was divided on the discount. With the country’s home prices already at record-high levels, there are signs of momentum following last month’s surprise cut. Auction clearance rates in some major housing markets have been nearing 90 per cent in recent weeks. Nationally, home prices have climbed 22 per cent since mid-2012. RBA: Central bank’s March decision There are already signs of auction momentum following last month’s surprise cut. ROOM TO MOVE ON RATES However, the RBA was not short of reasons to reduce rates today. Unemployment has hit a 12-year high of 6.4 per cent, business investment expectations have reached shockingly weak levels and cheap petrol is expected to push inflation below the RBA’s two-to-three per cent target band. R On top of that, the Australian dollar has been edging higher. The Commonwealth Bank, ANZ, Westpac and AMP Capital were among those lenders forecasting a March cut, with the general consensus being the RBA tends to deliver cuts in pairs. “Usually when they cut rates, they don’t just do one out of the blue and stop. It’s normally two,” Commonwealth Bank senior economist Michael Workman said. Finder money expert Michelle Hutchison said today’s cash rate pause is good news for savers, who have been hit hard with cuts to their returns for over three years. “But it’s not expected to last long for them, with the majority of experts forecasting another rate reduction by June this year,” Ms Hutchison said. RATE REPRIEVE AHEAD Financial markets are now pricing in rates to hit 1.75 per cent by the end of the year. AMP chief economist Shane Oliver said an RBA cut below 2 per cent is likely to result in home loan interest rates falling to less than 4 per cent. “It wouldn’t surprise me if we saw the cash rate at 1.5 or 1.75 per cent,’’ Mr Oliver said. Aussie Home Loan executive chairman John Symond also expects rates to continue on their downward trend in the coming months. “I think there’s probably another two rate cuts left,’’ he said. “I would hope and pray it doesn’t go any further than that because that would signal that our economy is really heading the wrong way.” The Australian dollar’s movement, and how low the RBA could ultimately cut the cash rate over the next few months, may depend on when the US Federal Reserve begins hiking its interest rates.