RBA downplays impact Westpac’s interest rate increase will have on house prices

Cash rate

The governor of the Reserve Bank of Australia has played down recent increases in mortgage rates by lenders such as Westpac Banking Corp (ASX:WBC).

Philip Lowe highlighted global risks to growth including a possible escalation of trade disputes and economic strains in emerging markets, and said the RBA was also watching out for a material lift in US inflation which could force the Federal Reserve to tighten policy at a faster pace.

Speaking at the RBA board dinner in Perth on Tuesday – hours after announcing the benchmark cash rate was on hold at an all-time low 1.50 per cent – Dr Lowe emphasised the need for policy to remain accommodative as the central bank awaits a revival in wage growth and inflation, which has undershot its two-to-three per cent target for more than two years.

Wage growth, on the other hand, is crawling near its slowest pace on record despite a strong jobs market.

“Many business people that I speak to recognise that a pick-up in overall wages growth would be a positive development from a macro perspective, although not from the perspective of their individual business,” Dr Lowe said.

“So there is a tension there … Our expectation is that wages growth will pick up from here, but the pick-up is likely to be only gradual.”

Lowe has remained patient on policy since taking over the reins at the RBA in September 2016.

The central bank last cut rates in August of that year and has since stayed on the sidelines.

Next move in interest rates likely to be up

He signalled the next move was going to be an increase, albeit not for some time.

The RBA has one eye on the country’s housing markets as tighter credit conditions take the heat off the once-booming sector, Lowe said without sounding alarmed about the trend.

He noted the recent increase in mortgage rates by banks in response to higher funding costs, but again played down its effects on the market.

Last week, Australia’s No.2 lender Westpac raised mortgage rates, a move considered by many as a de facto tightening in the market.

But Lowe disagreed.

“A much less remarked upon fact is that the average mortgage rate paid in Australia has fallen since August last year, as lenders have increased their discounts,” he said.

“I encourage anyone with a mortgage to shop around: there are some very good offerings out there.”

With AAP

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au