Cash rate decision: Will it change?

101The Reserve Bank of Australia (RBA) is set to meet this week to discuss the cash rate and decide whether to leave it at 2.5 per cent or adjust it.

Industry commentators have been predicting whether cash rate day will bring any surprises, though it’s unlikely to do so.

Comment from the inside

In the most recent Monetary Policy Decision from the RBA, Governor Glenn Stevens stated that the “most prudent course” is a period of stable interest rates.

The question, of course, is how long this period of stability will last. The RBA intends to use the cash rate strengthen future growth, with a lower exchange rate ideally spurring offshore investment.

Given the use of these policy tools, a drastic change is arguably not imminent anytime soon – though it pays to be on the ball with any shift in policy direction from the RBA.

Industry views

CommBank expects the RBA to “sit pat on official rates”, according to a March 31 release.

Such sentiment shows confidence in the lending industry, however it seems that low interest rates have benefited second-time buyers and investors over first home buyers in highly competitive markets such as Sydney.

Therefore, while the rate will remain low, it’s theoretically unlikely that first home buyers will be any closer to owning real estate.

That said, a number of government initiatives to drive the supply of affordable housing across New South Wales could enable more low- to middle-income earners to achieve property ownership.

CommBank anticipates a “tightening cycle” in late 2014, expecting an increase in the cash rate in November this year.

Anyone with an interest in the property market should pay attention to this gradual shift and potential changes and adjust their financial leverage accordingly.

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