RBA cash rate announcement

The Reserve Bank of Australia has announced the outcome of its monthly board meeting.

The central bank left the official cash rate on hold at 2.5 per cent as most experts had predicted.

However, it may not be long before interest rates start to rise.  Five economists from Commonwealth Bank, Commsec, HSBC, ING Direct and St George said that the cash rate would rise during the fourth quarter of 2014.

The Reserve Bank may have to lift rates in response to the latest housing market statistics.

The selling values had increased 15.8 per cent since June 2012. Investors now represent 38 per cent of all new housing finance commitments a level not seen since just before the housing boom peaked in 2003.

Clearly the rate of value appreciation across the Australian housing market has been unsustainably strong over the short term.

However, the national economy is seeing a great deal of benefit from the increased level of both developer and buyer confidence, which the RBA is likely to see as a positive outcome from the currently exuberant housing market conditions.

If value growth continues along the current trajectory, I think the Reserve Bank will be forced to take action to quell the level of exuberance via higher interest rates.

A rate rise would not impact the market, as buyers understood that rates were at an all-time low and were likely to rise in the next year.



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