HIA laments Reserve Bank's interest rate decision.

Wednesday 03 July 2013

Article by Mozo

The Housing Industry Association (HIA) has expressed dismay over the Reserve Bank of Australia's (RBA) decision to keep interest rates on hold for another month.

Interest rates weighing down housing construction

Following the RBA's decision yesterday to keep the cash rate at 2.75 percent for another month, HIA senior economist Shane Garret has claimed that the move will prolong the weakness in the residential construction industry, where activity is at its lowest point in over a decade. Mr Garret warned that with mining industry in decline it is necessary to insure the housing construction industry is set ready to fill the void.

While lowered interest rates would encourage the consumer market, Mr Garret believes that interest rates cuts are badly required in order to give businesses breathing space in terms of their interest rate costs.

"The scope for further reduction on the cash rate exists, despite the RBA's concerns about inflation. It must be remembered that the inflationary impacts of the recent dollar decline will be limited by the considerable slack that exists across sections of the economy as well as the use of fixed price contracts with suppliers," remarked Mr Garret.

The HIA has now put the onus on Australia's banks to reduce their interest rates out of cycle with the RBA's decision.

"Since November 2011, the banks have withheld up to 35 basis points of rate reductions from small business and mortgage borrowers. The RBA's failure to move today means that the banks now have the opportunity to seize the initiative. A unilateral rate cut from them over the next couple of days would add to the prospects for a decent and a sustainable residential construction recovery, which would directly or indirectly benefit tens of thousands of business, including the banks themselves."

Despite the RBA placing interest rates on hold in June, a number of lenders were seen reducing interest rates on their home loan products. With competition for new mortgages still high amongst the banks borrowers could still very likely see more cuts to home loan interest rates in July.

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