RBA May 2019 Cash Rate Decision
RBA board has met on Tuesday the 7th of May 2019 and decided to leave the cash rate unchanged at 1.50%. The cash rate has now been unchanged for nearly three years.
With an election around the corner, the mood from the RBA has been a wait and see around the employment numbers – with the cost of funding for the mortgage lender reduced over recent times and an AUD on the lower end of the range.
Growth in Housing Market
Growth in credit extended to owner-occupiers has eased, while demand by investors has slowed considerably as the dynamics of the housing market have changed, this can be supported by the February 2019 RBA credit growth report.
Credit conditions are tighter than they have been for some time, resulting in lenders with reduced risk appetite and lenders now going on record saying perhaps they were too conservative with mortgage applications, this has also occurred with weaker demand for investor lending.
As an example of reduced risk, some lenders have ceased products including reverse mortgages. Mortgage rates remain low and there is strong competition for borrowers of high credit quality, including heavy discounting and rebates, for borrowers that can qualify.
It is yet to be seen that a rate cut would stimulate the credit and housing markets, similar to what occurred in late 2016.
Locally, the scenario for the Australian economy slowed is to grow at a rate of 2.75% for 2019 and 2020. This has been supported by a pick up in the resource sector and increased spending on infrastructure.
Household consumption has been affected by a weakness in housing markets and a dragon low-income growth. The labour market is strong with the unemployment rate is 5%, with the demand for labour there has been some pickup in wage growth, with reported skill shortages.
Inflation for the March quarter was noticeably lower at 1.3%, with target inflation for 2019 to be 1.75% and a gradual rise in for inflation to be 2% by 2020. These inflation targets have been revised down from previous RBA expectations.
The RBA board made the decision that a low level of interest rates will continue to support the Australian economy and the gradual growth in inflation and have left the cash rate on hold.