Rates hold as RBA continues to wait and see

At its final board meeting of 2014, the Reserve Bank of Australia (RBA) has kept interest rates unchanged at 2.50 per cent.

Loan Market Chairman, Sam White says the decision to leave rates unchanged is the right one, particularly as there are some early indications of property market moderation.

"While activity has remained solid, we're starting to see a moderation in demand. Our number of pre approved buyers has increased over the last month but we've seen investor enquiries start to drop. This is combined with anecdotal declines in open for inspection attendees. We think this is proof that the jawboning the RBA has been doing is working and that buyers and investors are becoming more cautious in their outlook," Mr White says.

The Reserve Bank has said for some time now that there's a need for stability, with monetary policy remaining accommodative, and White agrees.

"Overall growth is below trend, unemployment is rising, the dollar is still relatively high and there's mixed consumer and business confidence. Additionally, growth in overseas markets, particularly in Europe and Japan, is still very soft. All of this makes for quite a patchy domestic outlook. So lower interest rates and more flexible policy will hopefully help support economic growth," Mr White says.

The cash rate has now been on hold for 15 consecutive months. The last change was in August 2013 when the RBA dropped 25 basis points to the present rate of 2.50 per cent.

Recent remarks by RBA governor, Glenn Stevens, in his address to the Committee for Economic Development Australia, indicate interest rates could remain low for the next few years, particularly if property prices are kept in check. However, economic forecasters are predicting rates will rise, albeit marginally from mid next year.

The RBA board will meet again in the new year on 3rd February 2015.