Interest Rates Likely to Remain On Hold for 2014

The Reserve Bank decided to leave interest rates on hold in June with the likely prospect that the current settings will remain throughout 2014.

The Bank indicated it was taking a wait-and-see approach and that rates are likely to stay at current levels reflecting recent mixed economic news.

Unemployment rates have remained steady with solid jobs growth, although jobless levels in some states are still stubbornly high.

Latest wage growth data is benign reflecting the low inflation economy with the level of real wages generally declining.

The local currency has settled at levels probably higher than Bank expectations, but with the recent upward trajectory moderating.

The sharemarket has also recorded recent moderate growth, but without a real sense of surging confidence or rising speculative activity with overall levels remaining below the previous peaks of 2007.

Home building levels although flattening recently remain encouraging – higher than a year ago – although the greater proportion of activity is with unit development which has a longer term impact on housing supply imbalances and economic activity.

Housing markets are providing signs of reinvigorating after a softening of growth rates over the March quarter.

Strengthening auction clearance rates over May in both Melbourne and Sydney from record listings –  together with rising buyer activity now in Brisbane and Adelaide – indicate upside potential for solid prices growth over winter, although not at the strong levels of 2013.

Although official interest rates remain on hold at the lowest levels for 60 years, indicative mortgage rates remain higher than the levels of 2009.

This indicates scope for downward mortgage rate movements from competition between banks for market share.

Low and falling mortgage rates will continue to fuel housing market activity.

Dr Andrew Wilson is Senior Economist for the Domain Group

Story source: www.domain.com.au