RBA keeps rates on hold for now

RBA keeps rates on hold for nowThe Reserve Bank of Australia (RBA) decided yesterday to keep interest rates on hold but flagged a potential further rate cut in the months ahead.In handing down its decision the RBA noted declining commodity prices and terms of trade, and growth in Australia continuing at below-trend pace.Strong housing prices in Sydney continue to be of concern to the Bank, however the RBA noted that there was strong variation across the other capitals.The latest data from CoreLogic RP Data shows that nationally house prices grew by a modest 7.4 per cent in the year to March. This is the slowest pace of increases since September 2013. By comparison, Sydney prices moved up by 13.9 per cent over the same period. Melbourne and Brisbane were the only other capitals to record price growth above the rate of inflation (at 5.6% and 2.7% respectively) with Canberra recording a 1.5 per cent for the period, while price growth in Perth (-0.1%), Hobart (-0.3%) and Darwin (-0.8%) contracted.The RBA noted that “Growth in lending to investors in housing assets is stronger than to owner-occupiers, though neither appears to be picking up further at present” and said that it “is working with other regulators to assess and contain risks that may arise from the housing market.” The Property Council’s Executive Director Residential, Nick Proud, said that price growth in Sydney was predominantly a hangover from a decade of undersupply.”Sydney built at recessionary levels for the better part of the last ten years and so the shortfall in supply is placing upward pressure on house prices,” said Proud.”Better balancing demand and supply across all markets is the key to moderating price growth. The more new homes that are brought onto the market, the less competition there is for stock and therefore the upwards pressure on prices is reduced.”Even with Australia now building at historic high levels with 205,796 homes approved (seasonally adjusted) for the year to February 2015 according to the latest ABS data, this only now matches household formation levels.”