The Reserve Bank has kept interest rates on hold this month, with the cash rate remaining at a record low 2.25%.
The hold on rates is good news for homeowners and property seekers with last month’s cut passed on by most lenders.
“Today’s cash rate pause announcement is good news for savers, who have been hit hard with cuts to their returns for over three years,” says Money Expert Michelle Hutchison.
“But it’s not expected to last long, with another rate cut on the cards in the near future, with the majority of experts (57%) forecasting another rate cut by June 2015.
“After last month’s rate cut, we saw 33 lenders announce rate cuts and all of them passed on the full cut, if not more. Many savings accounts also took a dive.
“If the Reserve bank cuts the cash rate again, the pressure is on for lenders to continue their good will by passing on the full cuts to variable rate mortgage holders as well as other borrowing customers such as for personal loans and credit cards.”
Here are some key implications of today’s decision:
- Low interest rates are here to stay – at least for the next year, and possibly longer. Savers need to secure with best possible returns, given the level of risk that they are comfortable with.
- Listed companies have adjusted to the new environment, maintaining or lifting dividends to attract new investors. In the recent profit-reporting season, 86% of all ASX 200 companies reporting half-year results issued a dividend, above the long-term average of 83.7%. Of all companies issuing dividend, 68% lifted dividends, 24% maintained dividends while only 8% cut dividends.
- This is a new era for interest rates. The Reserve Bank will be questioning whether rates can stay at current levels or fall further and provide a judgement about whether future rate cuts can still be effective in boosting economic activity.
- The fundamental factor holding back the Australian economy is confidence. Broadly, so-called economic fundamentals remain favourable. Inflation is low, interest rates are low, the budget deficit is still only around 2.5-3.0% of GDP and home building is at record highs. Consumers and businesses just need more confidence to spend, invest and employ.
Housing market continues to grow
Property values have been heading north of two-digits for a while now, and with low interest rates it’s set to stay that way. We area already seeing the effect of lower mortgage rates, with auction clearance rates surging to the highest levels we have seen since 2009 and valuation activity across CoreLogic RP Data valuation platforms reaching new record highs based on daily averages over the second half of February.
It’s no surprise that the Sydney and Melbourne property market is booming. Sydney continues to lead the way, with dwelling values 13.7% higher than the same time last year. Melbourne values were up 7.4%, while Brisbane saw the third highest increase with values up 5.9% in the past 12 months. However, there are concerns that this is widening the gap between the rich and the poor.
If you would like to speak with a knowledgeable and experienced accountant with regard to any of the above information; please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com
