RBA Keeps Sitting Tight on Interest Rates
I see the Reserve Bank’s decision to hold the cash rate steady at 4.25% on Tuesday as an indication that the RBA will wait for the release of inflation figures later in the month, leaving the door open for an interest cut in May.
Latest figures from the ABS (Australian Bureau of Statistics) show that building approvals fell by 7.8% in February, seasonally adjusted, following a rise of 1.1% in January, which placed pressure on the RBA to cut interest rates at this month’s board meeting.
With median property prices on the decline across all states and approvals for private sector housing down by 3.4% in February and a 15.8% drop in approvals for other dwellings, such as units and apartments, we can only hope for an interest cut in May.
At some point soon, the RBA will have to cut interest rates to reinvigorate the market and make up for the slump we have seen since the last cut. While I can understand the RBA’s caution over the past two months, especially in view of the European financial climate, it has become obvious that further cuts should have taken place.
In order to strengthen the real estate market, boost new dwelling construction to meet the housing shortage and encourage market activity especially from first home buyers, an interest rate cut is a ‘must have’.
If we really wanted to invigorate the real estate market, perhaps, easing of planning costs and delays, an amendment of capital allowance provisions to enable accelerated depreciation of new rental dwellings and a national reduction of stamp duty obligations for first time buyers would be steps worth considering.
Cutting the interest rate, reducing the cost base of new housing, increasing housing supply, and boosting affordability are not only worthy aims, they are essential to a more productive economy. Housing is shelter and a necessity of life, and we should make curbing its shortage a high priority when making budgetary and legislative decisions.
Robert Projeski is a respected property finance expert and the managing Director of Australian Mortgage Options, an independent mortgage management firm with over 9 industry awards to its name. www.amo.com.au
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