Melbourne Cup day rate move a non starter

The RBA is keeping the cash rate unchanged as it waits to see if the housing market will cool and if economic growth picks up.

A man walks by the Reserve Bank of Australia.

The Reserve Bank's tradition of moving the cash rate on Melbourne Cup day seems to be on hiatus. (AAP)

The Reserve Bank's tradition of moving the cash rate on Melbourne Cup day seems to be on hiatus.

The RBA has moved the cash rate, either up or down, five out of the last eight November board meetings.

But this meeting will be a little different because the RBA is caught between keeping its interest rate very low until economic growth is above trend and the temptation to hike the rate to rein in the booming housing sector.

None of the 14 economists surveyed by AAP say the Reserve Bank will move the rate from its record low of 2.5 per cent on Tuesday, or in December.

The RBA has kept the cash rate unchanged since August 2013, but the increase will come some time next year.

Twelve of the economists surveyed say there will be a rate hike in 2015.

Seven are predicting the first increase will come in the first half of the year and five are saying it won't happen until the later in the year.

HSBC chief economist Paul Bloxham said the record low cash rate is doing its job but it is also creating risks with the housing market and home prices surging strongly.

"After a long period in which Australia was building mines and too few houses, there is now a strong pipeline of housing construction," he said.

Mr Bloxham said the longer interest rates stay low there is the increasing chance that housing prices cold become misaligned with economic fundamentals.

Reserve Bank governor Glenn Stevens has expressed his concerned about the rapid rise in loans to people investing in the housing sector and the fact that they are pushing up prices and shutting owner occupiers and first-home buyers out of the market.

Mr Stevens said the RBA is working with the Australian Prudential Regulation Authority (APRA) to introduce a raft of changes before the end of the year.

Mr Bloxham said the introduction of new regulations to put a lid on housing prices in Sydney and Melbourne will allow the RBA the keep the cash rate unchanged until mid 2015.

Commonwealth Bank chief economist Michael Blythe said regulations to take the heat out of the housing markets in Australia's two largest cities will allow the RBA to put off raising the cash rate.

It is one of the reasons why CBA has changed its forecast for the next rate hike from February to August.

"We suspect that this shift in thinking towards alternative tolls was done reluctantly," Mr Blythe said.

"But it does indicate a greater reluctance to use interest rates than we thought likely."

Mr Blythe said positive economic factors such as the lower Australian dollar assisting the transition of the economy to one that is not driven by mining investment has also ruled our the need for any further interest rate cuts.


Share
3 min read

Published

Updated



Share this with family and friends


Get SBS News daily and direct to your Inbox

Sign up now for the latest news from Australia and around the world direct to your inbox.

By subscribing, you agree to SBS’s terms of service and privacy policy including receiving email updates from SBS.

Download our apps
SBS News
SBS Audio
SBS On Demand

Listen to our podcasts
An overview of the day's top stories from SBS News
Interviews and feature reports from SBS News
Your daily ten minute finance and business news wrap with SBS Finance Editor Ricardo Gonçalves.
A daily five minute news wrap for English learners and people with disability
Get the latest with our News podcasts on your favourite podcast apps.

Watch on SBS
SBS World News

SBS World News

Take a global view with Australia's most comprehensive world news service
Watch the latest news videos from Australia and across the world
Melbourne Cup day rate move a non starter | SBS News