You are using an older browser version. Please use a supported version for the best MSN experience.

Reserve Bank keeps interest rates on hold

ABC NEWS logo ABC NEWS 6 days ago
People walk past the Reserve Bank Australia office in Sydney on March 19, 2008. Australia's economic growth is likely to slow later this year, removing pressure on the central bank to lift interest rates, a survey released at March 19 predicted.The Reserve Bank of Australia lifted rates 0.25 points to a 12-year high of 7.25 percent in March, the 12th rise since mid-2002, as it attempts to keep inflation within its 2.0-3.0 percent target range amid a resources boom fuelled by unprecedented demand from China.  AFP Photo/Anoek DE GROOT (Photo credit should read ANOEK DE GROOT/AFP/Getty Images) © 2008 AFP People walk past the Reserve Bank Australia office in Sydney on March 19, 2008. Australia's economic growth is likely to slow later this year, removing pressure on the central bank to lift interest rates, a survey released at March 19 predicted.The Reserve Bank of Australia lifted rates 0.25 points to a 12-year high of 7.25 percent in March, the 12th rise since mid-2002, as it attempts to keep inflation within its 2.0-3.0 percent target range amid a resources boom fuelled by unprecedented demand from China. AFP Photo/Anoek DE GROOT (Photo credit should read ANOEK DE GROOT/AFP/Getty Images) .

Rebounding house prices have painted the Reserve Bank into a tight corner, potentially undermining the prospects of further interest rate cuts.

As expected, the RBA board, at its final meeting for the year, kept rates on hold at the historic low of 0.75 per cent.

The RBA stared down increasingly disappointing economic data, preferring to "wait and assess" the impact of the three cuts delivered since June.

While the rate cuts have failed to move the dial on unemployment — which has ticked back up to 5.3 per cent — wage growth or retail sales, it has put a rocket under house prices again.

CoreLogic's December survey found prices nationally have risen 4 per cent in the past three months, while the more expensive and indebted markets of Sydney and Melbourne have jumped by more than 6 per cent.

"I think there is a bit of a fear of missing out now in the market," SQM Research managing director Louis Christopher said.

"There's a real possibility here that the prices in Sydney and Melbourne are going to continue to fire up right throughout 2020 before we see any action from [prudential regulator] APRA."

Larissa, who works as a lawyer in Sydney, said she has seen the dramatic turnaround in prices over the past year first-hand, as she struggles to buy a first home with her partner.

"Every new house that comes onto the market, I feel a need to immediately go see, because they're going really quickly and there's not much new stock coming on," she said.

"My hope is that it will be better next year, but you never know and it seems to really be driving up the prices.

"There is a real fear, and I think it's driving the prices up."

Rising house prices generally require rising mortgage debt to pay for them.

The RBA has repeatedly cited high household debt as one of its greatest concerns.

The fear of further inflating house prices and debt was one of the key reasons behind interest rates being kept on hold for almost three years, despite below average economic growth and inflation remaining well below the RBA's target band during that period.

"Household debt-to-income is around 200 per cent, household debt-to-GDP is around 120 per cent and even through house prices declined somewhat over the last 12-to-18 months, those levels are still high," IFM Investors chief economist Alex Joiner said.

"I think the risk is that lower interest rates still from the Reserve Bank, and lower interest rates for an extended period of time, risk exacerbating that household debt issue that we have in the economy."

Loading...

Load Error

More from ABC News

image beaconimage beaconimage beacon