Rates on hold, Deutsche Bank tips falls in 2015

Property investors and economists have begun to consider what many would have thought impossible just months ago – that interest rates could fall further in 2015.

The Reserve Bank left the cash rate at 2.5 per cent for the 16th consecutive month at its December meeting today. Not only have rates been left at record lows, the decision extended what has been the longest period without change since 2004-06.

It was hoped continued accommodative monetary policy would support growth in the economy over time, RBA Governor Glenn Stevens said after the meeting.

“Interest rates are very low and have continued to edge lower over the past year or so as competition to lend has increased,” he 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.”

Spare capacity in the labour market keeping a lid on inflation, and the Australian dollar continuing to trade “above most estimates of its fundamental value” also influenced the RBA’s decision that its most prudent course was still “likely to be a period of stability in interest rates”.

The next RBA meeting to consider rates is scheduled for February.

Ahead of today’s meeting, economists unanimously tipped the RBA would leave rates on hold. While opinions have varied on when the next move would be, in past months the consensus has been the move would be up.

Deutsche Bank though now expects the RBA to cut the cash rate by 25 basis points in the June quarter and again around September or October next year.

That would take the cash rate to a fresh record low of 2 per cent.

Chief economist Adam Boyton believes the housing market strength that has supported the economy is easing.

”When we combine that with our expectations for the unemployment rate – which is that it will rise all the way through next year – all that suggests to us that there is scope for the RBA to cut rates further,” he told ABC News.

Figures released by CoreLogic (formerly RP Data) showed a 0.3 per cent fall in property values across Australia’s capital cities in November, while the annual rate of growth continued to moderate.

As a key part of the property investment mix, having interest rates at record lows for a sustained period is generally good news for investors.

Property investors have already benefited from increased competition to lend from the banks, which is set to continue. The RBA’s latest decision leaves the door open for property investors looking to enter the market, or refinance existing property investments.

For obligation-free expert advice on your property investment ambitions, speak to Portfolio Management Services’ acquisitions experts today on (03) 9621 1044.