Interest rates still at 1.5%, despite falling home prices

The Reserve Bank of Australia disclosed on Tuesday that it is holding the interest rate at 1.50% while it keeps an eye on the country’s home market.

In Governor Philip Lowe’s statement regarding the monetary policy decision, it was noted that conditions in the Sydney and Melbourne housing markets have continued to ease, and nationwide measures of rent inflation remain low.

Inflation is around 2% at present, but this is expected to climb in the next two years.

The bank also highlighted that the Australian economy continues to grow. In fact, the GDP rose by 3.4%. Now, it is projected to improve further to an average of a bit above 3% in 2018 and 2019.

Moreover, the labour market also showed positive results. The unemployment rate is tracking lower and is currently at 5.3% – marking the lowest level in almost six years.

Marcel Thieliant, Senior Economist for Australia at Capital Economics, commented on the rate decision in relation to home values. “We think that the full effects of tighter credit conditions and falling house prices have yet to be felt. That means the labor market will tighten only slowly and inflation won’t rise much. Our view is that the bank won’t raise interest rates until the second half of 2020.”

Bloomberg, meanwhile, reported that Lowe is wary about the household debt across the nation, which is now at 190.5%of income. “Potentially further weighing on households is an out-of-cycle mortgage-rate hike by three of the nation’s big-four banks. Consumption accounts for almost 60% of Australia’s gross domestic product so any risk to its outlook is significant,” the news portal stated.