RBA looks past housing downturn to hold rates at record low
The Reserve Bank of Australia has looked past the housing downturn which has gathered some momentum over the past three months, to hold the cash rate firm at 1.5% their first meeting this year.
The hold decision was widely anticipated, considering a subtle uplift in CPI and steady labour market conditions, however financial markets are increasingly leaning towards the next move from the RBA being a cut rather than a hike.
With CoreLogic's January hedonic index revealing national dwelling values are falling at the fastest rate since the GFC, while Sydney and Melbourne's rate of decline is now the most rapid since at least the early 1980s, there is the potential the RBA may be becoming less comfortable with the performance of the housing sector.
Add to this a consistent downtrend in dwelling approvals, weakening consumer sentiment and softer retail trade figures, and it looks like the household sector could start to weigh down economic growth.
The weeks preceding the RBA meeting saw several smaller lenders pushing mortgage rates higher in response to persistently high funding costs, following an average 14 basis point rise in owner-occupier mortgage rates since September last year.
If we see mortgage rates rising more broadly, we might see the RBA become more willing to consider a rate cut in an effort to offset higher funding costs and support heavily indebted household balance sheets.