Beginning of November 2017, RBA & RBNZ rate hike are likely to impact the housing market.

What to expect from RBA Cash Rate Decision?

Key RBA ‘cash rates’ were kept unchanged on October 4 monetary policy statement, the 14th consecutive decision about cash rate in which RBA decided to hold rates steady to 1.50%.

The economic conditions that influenced the Board’s decision became public one day after data showed that house prices in Sydney slipped after a period of 17 months, with median house price falling nearly 4.0% in the said area while in other capital cities prices increased, albeit, only marginal.

Considering the tightening conditions in credit and the slow pace in borrowing the housing debt to GDP is now growing faster than the growth in gross national income, as the following chart indicates.

With no official cash rate hike since November 2010, and with investing credit growth and the acceleration in the housing market having both noticeably improved due to a cash rate cut in the past, experts are likely to be correct on their prediction for a no change in November.

Economists though predict (est. 73%) a rate hike within the next 6 months mainly attributed to the growth in jobs market and also in business conditions, which in return are likely to support higher wages.

Wage growth has remained at low levels along with inflation, albeit, the Australian Dollar has appreciated amid a weaker US counterpart.

The higher exchange rate is likely to add pressure in the economy as prices increase and hence exports may decline, but still remain at high levels without having a direct impact on exports to OECD countries (apart a noticeable decline in January 2017).

RBA maintains a positive stance on growth and persists that the economy will gradually improve within 2018, where an interest rate hike is most probable.



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