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All eyes on RBA amid talk of interest rate cut

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2015-11-02
Expectations of a rate cut spurred on by the big four’s decision to lift rates may not be met when the Reserve Bank meets in November.
Speculation about a rate reduction mounted last week when the Commonwealth Bank, NAB and ANZ followed Westpac’s lead and pushed up their rates independently of the RBA.

But Sydney house prices are standing in the way, says SGS Economics and Planning principal Terry Rawnsley.

He predicts rates will remain unchanged when the RBA meets on Tuesday (Nov 3) due in large part to Sydney’s seemingly unstoppable property prices.

“If the housing market wasn’t so strong in Sydney the bank would be more comfortable about reducing interest rates,” he says.

“If there was a Reserve Bank of Sydney they would probably have interest rates at 3.5% compared to 2% for the nation.”

Juggling the needs of a patchwork economy will be a challenge for the RBA, Rawnsley says.

“Sydney is going really strong still especially in house prices whereas other parts of the economy such as Tasmania and South Australia are languishing,” he says. “So they’re trying to balance a macro economy going at different speeds and also trying to manage that transition from a mining boom to a more domestic, construction-led economy.”

Construction is expected to continue its strong trend upwards with the Housing Industry Association predicting another healthy year ahead for the residential building industry.

HIA chief economist Dr Harley Dale says a strong pipeline of approved activity will push along a historically high level of new dwelling starts.

“New dwelling commencements will remain at very elevated levels in 2015/16 while the pace of recovery in renovations activity will accelerate,” he says.

With the nation’s cash rate at a historical low of 2%, homeowners may consider fixing their loans. But Yves Schoof, director and principal advisor at Affluence Private Wealth, says this should only be done if there are no big changes on the horizon.

“A lot of people fix on the rates and say, ‘I don’t want to pay any more’, but ignore their personal circumstances such as moving or starting a family, which may lead them to have to break those fixed rates,” he says.

“The only time I would fix rates is if you want to use it as an insurance policy. Otherwise if you want to hedge your bets either way by getting a split loan.”


Source:http://www.realestate.com.au/blog/all-eyes-on-rba-amid-talk-of-interest-rate-cut/