Interest rates unchanged, outlook good for investors

The Reserve Bank has left interest rates on hold for a 13th consecutive month, a decision widely anticipated by economists and financial markets.

At its previous meeting, the RBA judged that monetary policy was appropriately configured and the most prudent course was likely to be a “period of stability” in interest rates. The most recent move in the cash rate was down – to 2.5 per cent in August last year.

In a Bloomberg survey before today’s RBA meeting, National Australia Bank senior economist David de Garis said he expected rates to remain on hold for another year.

“They’re signalling a period of rate stability which suggests they’re in no hurry to do anything other than leave rates where they are for the time being,” he said.

It comes amid a benign global interest rate environment that has driven relative yields on Australian financial debt to seven-year lows. Australian banks are keen to win new business, taking advantage of cheap wholesale funding to discount variable-rate loans and cut rates on fixed-term mortgages.

The Commonwealth Bank dropped its five-year fixed mortgage rate to a record low of 4.99 per cent in July. The bank’s general manager of home loans, Clive van Horen, said it was a sign of fierce competition.

“There’s probably more competition today than there’s been in many, many years – some people would say many decades,” Mr Van Horen 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 not great 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. “We know for instance Brisbane is racing ahead – prices are recovering and there’s a correction underway. Interest rates are low and you get all the tax benefits. It all goes to serviceability.”

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