Reserve Bank leaves cash rate at 2.25 per cent

The-RBA-has-kept-the-cash-rate-at-225-per-cent-for-the-time-being-_157_6005758_0_14102452_300Speculation has been flying about when the Reserve Bank of Australia (RBA) will cut the official cash rate, but investors might have to wait a little longer before the receive a solid answer. In a March 3 statement, Governor Glenn Stevens announced that the board decided to leave the cash rate untouched at 2.25 per cent.

To settle uncertainty, Mr Stevens acknowledged that a further trim will be forthcoming. There are a whole range of factors that might spur the Bank into action. In particular, it depends on how the economy tracks in the coming weeks.

Mr Stevens also noted that investment in the property market is a major factor that continues to perplex and astound, with Sydney values in particular causing the RBA board concern.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent month,” Mr Stevens said in a March 3 statement.

The RBA has cut rates at periodic intervals since 2011, dropping from 4.75 per cent in October of that year to its current low. It has been a balancing act – falling commodity prices, a fluctuating dollar and inconsistent consumer confidence have required the Reserve Bank to kick start the Australian economy. At the same time, CoreLogic RP research has found that since 2008, Sydney’s home values have more than doubled, climbing a staggering 56.9 per cent.

Head of Research at CoreLogic RP Data, Tim Lawless, expects that the bank and Australian Prudential Regulation Authority (APRA) will attempt to dampen the fire by introducing macroprudential tools.

“APRA has been recently vocal about Australian lenders remaining within the regulatory benchmarks for the pace of investment lending and serviceability measures,” he said.

This is a factor that could explicitly impact investors, particularly in Sydney. Growing prices open opportunities for capital growth, but tighter regulation might mean it could be harder to obtain finance – or that values moderate slightly. Speak to your local agent or property manager about what investment regulation could mean for your portfolio.

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