‘Prepared to be patient’: RBA sits tight over Christmas as house values soar

The Reserve Bank has used its last meeting of the year to hold official interest rates at a record low of 0.1 per cent as figures show property prices around the country growing at record levels.

Following the bank’s last board meeting of the year, the RBA held the cash rate where it has been since November last year, despite growing expectations in financial markets it will soon have to lift rates to deal with emerging inflation pressures.

RBA governor Philip Lowe played down concerns about inflationary pressures across the economy, saying the bank was committed to keeping interest rates low.Credit:Nicholas Rider

It also decided to stick with its $4 billion-a-week government bond-buying program until February, when it will review the operation.

RBA governor Philip Lowe played down concerns about inflationary pressures across the economy, saying the bank was committed to keeping interest rates low.

“While inflation has picked up, it remains low in underlying terms. Inflation pressures are also less than they are in many other countries, not least because of the only modest wages growth in Australia,” he said.

“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

“This is likely to take some time and the board is prepared to be patient.”

Dr Lowe said by February, the bank would hold about $350 billion of bonds issued by Australian governments. He revealed the board would look at three issues before deciding how to change the bond-buying program.

“In reaching its decision in February, the board will be guided by the same three considerations that it has used from the outset of the program: the actions of other central banks; how the Australian bond market is functioning; and, most importantly, the actual and expected progress towards the goals of full employment and inflation consistent with the target,” he said.

Dr Lowe said while house prices had climbed strongly over the past year, the rate of increase was slowing.

“Housing credit increased by 6.7 per cent over the past year, but, more recently, the value of housing loan commitments has declined from high levels,” he said. “With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers.”

The decision was released after Australian Bureau of Statistics figures showed residential house prices increased 5 per cent in the September quarter, to be up 21.7 per cent over the past year.

The biggest gain in the quarter was in Hobart, up by 8 per cent to be 25.7 per cent higher over the past 12 months. Sydney prices rose 6.2 per cent (to be 25.4 per cent stronger over the year) while they lifted by 3.6 per cent in Melbourne to be 19.5 per cent up on the annual measure.

The total value of Australia’s 10.7 million residential dwellings jumped by $487 billion through the quarter to reach a record $9.3 trillion.

The average price of a residential dwelling increased to $863,700 from $821,700 in the June quarter.

ABS’s head of price statistics, Michelle Marquardt, said the September-quarter results were in line with housing market conditions.

“Continued solid growth in residential property prices was supported by record low interest rates, strong demand and low levels of stock on the market,” she said.

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