Today's Reserve Bank Rate Decision

RBA Governer Philip Lowe, 2017
Image: Thanks to The New Daily

The financial markets and all economists had predicted the Reserve Bank of Australia (RBA) would keep the cash rate on hold and that's exactly what the RBA board did today.

The cash rate remains unchanged at 1.5 percent because of the strength in the national housing market over the second half of 2016. A consistent increase in investment projects since the rate cut in May and August last year was also a major factor in the RBA board retaining the current interest rate.

For Townsville, any further increase in the cash rate would be unwelcomed. Housing market conditions have been weak in North Queensland for the past 5 years. Darwin and Perth markets have also seen dwelling values drop since 2014, which as capital cities, were material factors in an unlikely rate increase.

It is likely the momentum in the housing market is one of the primary reasons why the Board did not jump on a rate decrease in an effort to stimulate spending and risk pushing inflation higher. Inflation has been tracking lower than the RBA's target range for just shy of 3 years.

CoreLogic reported; "capital city dwelling values were 10.7% higher over the past 12 months, which is a substantially higher growth rate than the 7.4% recorded over the same period a year ago." As a measure of contrast, the Townsville housing market saw a 8% decrease in dwelling values in the past 12 months.

Housing market conditions have pulled back on par with the previous rate reductions and the repetitive rise in investor involvement due to the accelerated pace of capital gains in the major capital cities. However, housing conditions vary considerably across the country. 

Mr Philip Lowe, Reserve Bank Governor, said; "Growth in rents is the lowest it's been in eastern markets for a couple of decades." Despite slowing rent growth, lending for investors has picked up. Lenders are cautious about lending in some sectors with a stiffening of supervisory measures being applied in these higher risk markets.

Still, the cost of debt remains historically low which should see demand for housing remaining strong from owner occupiers and investors, despite the cash rate staying on hold and some lenders making subtle increases to their mortgage rates.

Improvements in the global economy have provided a boost in commodity prices resulting in better than expected trade conditions for Australia. China's investment in infrastructure and construction contributed higher spending and stronger growth over the second half of 2016.

Financial markets have performed effectively. Most global stock markets have risen. Inflation is quite low and under control at 1 1/2 percent. This is expected to continue as labour costs will remain low moving forward.

Reserve Bank of Australia rate announcement

http://www.rba.gov.au/media-releases/2017/mr-17-02.html

References:

Research Bank of Australia (RBA)

Corelogic

Rapid Realty Australia

Herron Todd White

Hold on Cash Rate Strength for Townsville Market

"Townsville Real Estate Blog reported in its article "Boom or Bust? Convergence of Factors Impacting Townsville Real Estate Market, August 2014 that low interest rates are strength to the local real estate market. It is one of the top ten reasons for creating positive demand in the real estate market", Rapid Realty Principal, Mr McLeod said.

Today, The Reserve Bank backed up the prediction of most economists by leaving the official cash rate at a record-low 2.5 per cent for the 13th consecutive month.

Reserve Bank Governor, Glenn Stevens said; "In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."

ANZ chief economist Warren Hogan said the economy had been playing out as expected, with housing doing well and the gradual transition to a non-mining recovery on track.

He also said the Reserve Bank would have derived no benefit from lowering rates because it would have squandered an option “that would be better used if a major problem emerges”.

Commonwealth Bank chief economist Michael Blythe said the Reserve Bank would start a “modest tightening cycle” in February that would eventually lift rates to a ‘neutral’ 3.5 per cent.

Peter Munckton from Bank of Queensland said the Reserve Bank was likely to keep rates on hold for the rest of 2014/2015, but that it would most likely cut further if it did make a change. “The bar for another rate cut is quite high and would require the currency to remain around current levels, the unemployment rate to rise further and momentum in the non-mining economy to stay modest,” he added.

"The Reserve Back decision today to keep rates on hold at .25 percent is critical for the Townsville economy to continue the path of recovery in demand and price growth moving forward.", Mr McLeod commented.

Reference:

Townsville Real Estate blog - http://townsvillerealestate.blogspot.com.au/

Reserve Bank of Australia - http://www.rba.gov.au/media-releases/2014/mr-14-15.html

Rapid Realty - www.rapidrealty.com.au

Farm a Queen Bee; Reserve Bank Board Membership Genius

Townsville and regional economies in Australia have specific and contextual demands impacting on cash flow and capital opportunities, risks and constraints and it must be acknowledged by Australia's political leadership and fiscal policy makers.

In the scope and context of Australia's economic contributions, regional Queensland's economic activity is a significant measure on the Reserve Bank's agenda in setting monetary policy and cash rates that regulate investment decisions and therefore business and consumer confidence.

Townsville Real Estate Blog supports the approach by local Townsville and Regional Queensland economist Colin Dwyer to the Prime Minister, Tony Abbott, Treasurer Joe Hockey and RBA Board to appoint the next Board Member from the pool of capable intellectuals and professionals from our region.

In the words of local economist Mr Colin Dwyer:
  
Regional Australian Member of the RBA Board

 It’s interest rate day today, and its time to prosecute a case for a regional Australian to become a member of the Reserve Bank Board. Not one of the nine members of the Reserve Bank board lives in Regional Australia. Not one of the past members of the monetary policy making body has ever lived in regional Australia. How can the RBA board make a decision on behalf of all Australians if they haven’t experienced the conditions in some of those locations?

Regional Australia comprises a third of Australia’s population, contributes most of its exports and many of its tourism destinations. In the past decade regional Australia with its mining industry kept recession and depression from Australia’s door. Its time for some regional Australia recognition.

I first raised this issue in 2010. Next year will be the first chance for a regional Australian to join the RBA board and express regional Australia’s rational expectation regarding monetary Policy and interest rates. In December 2015 Roger Corbett’s position comes up for re-election. Following that Catherine Tanna’s position is available on 29 March 2016, followed by John Akhurst role on 30 July 2016. Two other positions become available in 2017.

In total there are nine members of the RBA board with six non-executive members appointed by the Treasurer. The non-executive members are appointed for terms of up to five years. There is no limit on the number of terms a member may serve.

Are all the previous federal governments saying that there is no regional Australian who has the calibre to be appointed to the board? Next year, surely presents an opportunity for the current federal government to change this value judgement, honour the contribution of regional Australia and ensure regional Australia has a say in monetary policy decisions.

There are many worthy regional Australian contenders for this challenging role and some of them live in Townsville including, Company director Russell Laird, James Cook University Deputy Vice Chancellor Chris Cocklin and Chamber of Commerce president Stephen Moti.

After contributing our fair share over the past half century, its time a Townsville and regional Australian resident was appointed to the Reserve Bank Board. Only this way can a third of Australia’s population be confident that monetary policy decisions are including them.

The economic scorecard for Townsville and much of Queensland's regional economy certainly warrants unprecedented action from our political and business leaders. RBA Board membership is one positive step in a progressive Asian-centric trading zone in which Australia finds itself deeply entrenched.

Townsville is currently experiencing the highest unemployment rate at approximately 10 percent in the State and the property investment and accommodation economy is trending in negative territory with high vacancy rates and a notable decline in new mortgages being written by lenders.

Townsville Real Estate Blog will report on the specific factors our team believes has evolved contributing to the current property investment and accommodation economy in Townsville. Watch this space and visit our previous articles as follows:

North Queensland Strata Rental Market in Eye of Perfect Storm

http://townsvillerealestate.blogspot.com.au/2013/12/north-queensland-strata-rental-market.html

Lead Indicators for Townsville Property Market

http://townsvillerealestate.blogspot.com.au/2013/08/lead-indicators-for-townsvilles.html

Time to Wake up and Smell the Roses; Queen Bees are Being Born

http://townsvillerealestate.blogspot.com.au/2013/03/time-to-wake-up-and-smell-roses.html

Townsville and Central Queensland's property market is experiencing significant challenges on the back of high unemployment, mainly due to misdirected, and perhaps in hindsight for the State government, unintended consequences from policy commitments aimed at remedial budget and economic measures. Many proponents believe these measures are excessive! Political judgement in the context of current sensitivities could cause political damage at the ballot box with a change likely in local representation.

Further uncertainty and policy risks to business from political instability is unwelcome developments in light of the most recent Stafford State bi-election in the northern suburbs of Brisbane. The appointment of a Townsville-based Reserve Bank Board Member could bring both strategic and practical benefits to the region where federal policy influence on military, research, education infrastructure is sustained by federal budgets.

Townsville Real Estate Blog supports Mr Colin Dwyer's insights and respect the foresight of such an important appointment impacting on regional monetary policy, which could also influence like never before, the formation of fiscal policy by incumbent and future governments.