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Why you should worry about Reserve Bank of Australia leaving interest rates on hold at 0.1 per cent

Australian home buyers should be worried about the Reserve Bank leaving interest rates on hold this month again at record low of 0.1 per cent.

Philip Lowe declared interest rates would stay on hold now until 2024, with experts fearing this could lead to a property price bubble.

The cash rate was left on hold again on Tuesday with Dr Lowe promising to leave it there until inflation, now at 0.9 per cent, rose back to the two to three per cent target. 

‘For this to occur, wages growth will have to be materially higher than it is currently,’ Dr Lowe said.

‘This will require significant gains in employment and a return to a tight labour market. 

‘The board does not expect these conditions to be met until 2024 at the earliest.’

Australian home buyers should be worried about the Reserve Bank leaving interest rates on hold this month at record low of 0.1 per cent. The cash rate was cut to an all-time low in November and Philip Lowe, the central bank governor, has repeatedly declared rates would stay where they were for three years

Australian home buyers should be worried about the Reserve Bank leaving interest rates on hold this month at record low of 0.1 per cent. The cash rate was cut to an all-time low in November and Philip Lowe, the central bank governor, has repeatedly declared rates would stay where they were for three years

Australian home buyers should be worried about the Reserve Bank leaving interest rates on hold this month at record low of 0.1 per cent. The cash rate was cut to an all-time low in November and Philip Lowe, the central bank governor, has repeatedly declared rates would stay where they were for three years

The cash rate was cut to an all-time low in November and Dr Lowe has repeatedly declared rates would stay where they were for three years. 

Financial comparison group Canstar’s group executive of financial services Steve Mickenbecker said Dr Lowe’s promise was likely to be broken with the housing market at risk of overheating.

‘The Reserve Bank doesn’t expect to raise the cash rate for three years or more, but unless property prices can be slowed it will have to start looking for some way to apply the brakes,’ he said.

‘First-home buyers and new construction are leading the charge for property buying rather than investors, so the Reserve Bank can’t enlist APRA to target investors with lending caps as it has done previously.’

In 2017, the Australian Prudential Regulation Authority – the banking regulator – tightened lending rules on investor and interest-only loans, sparking a plunge in Sydney and Melbourne house prices.  

Financial comparison group Canstar's group executive of financial services Steve Mickenbecker said Dr Lowe's promise was likely to be broken with the housing market at risk of overheating

Financial comparison group Canstar's group executive of financial services Steve Mickenbecker said Dr Lowe's promise was likely to be broken with the housing market at risk of overheating

Financial comparison group Canstar’s group executive of financial services Steve Mickenbecker said Dr Lowe’s promise was likely to be broken with the housing market at risk of overheating

Despite last year’s Covid recession, Sydney’s median house price in February surged by 3 per cent while Melbourne’s equivalent value in just one month climbed by 2.4 per cent, CoreLogic data showed.

Property price records were set in 46 of Australia’s 88 sub-markets, as capital city and regional prices surged by 2.1 per cent – the fastest monthly growth since August 2003.

With three of Australia’s big four banks offering fixed-interest home loans of less than two per cent, it’s little wonder mortgage interest payments are at the lowest level since 1978.

Financial experts are particularly concerned about home units, with 55 per cent of the 40 economists surveyed by Finder warning about a collapse in capital city apartment prices.

Source: Daily Mail Australia | World News

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