Interest rate stability as cash rate left at 2.5%

The Reserve Bank has left the cash rate on hold at 2.5 per cent for a 14th consecutive month, reiterating earlier statements its most prudent course is “likely to be a period of stability in interest rates”.

Few were surprised by the announcement, with RBA governor Glenn Stevens saying in July the bank would change the language in its statements long before raising rates.

In his post-meeting statement today, Mr Stevens said most data was consistent with moderate growth in the Australian economy, although the bank expected growth to be below trend for the next several quarters. It also expected it could be “some time” before unemployment declined consistently.

“Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased,” Mr Stevens said.

“Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets. Dwelling prices have continued to rise over recent months.”

Mr Stevens said the exchange rate had declined recently but remained high by historical standards.

“Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years,” he said.

As a key part of the property investment mix, a sustained period of interest rates at low levels is good reason for investors to feel confident.

Portfolio Management Services’ Director Acquisitions Grant Edmunds said with returns on bonds and deposits low from an investor’s point of view, some would look to property investment. For those already in the market, refinancing opportunities were also available.

“It is a good time to buy in if the property is bought well,” he said. “Interest rates are low and you get all the tax benefits. It all goes to serviceability.”

The challenge for property investors is finding well-priced investment property in the current market, fueled in part by the record-low interest rates.

Portfolio managing director Jock Bing said while there was always something that made sense for property investors to buy, those properties were taking longer to find in Melbourne, Sydney and Brisbane.

“At the moment in Melbourne we might look at 15 properties before finding one to buy, that fits our model,” he said. “In Sydney it is more like 10 properties, in Brisbane it might be five.”

Portfolio’s acquisitions team inspects more than 2000 properties a year in prime investment markets for its clients, buying established properties that fit its proven investment criteria. Properties bought by Portfolio have averaged annual returns of 11.7 per cent since 1972, according to research by leading Australian property analysts Atchison Consultants.

To discuss your property investment goals with the Portfolio team, call (03) 9621 1044.