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Cash rate to stay on hold at 2.5 per cent

April 1st 2014

The Reserve Bank decided to keep the cash rate on hold at 2.5 per cent for its seventh consecutive monthly meeting.

Reserve Bank governor Glen Stevens reiterated that we are likely to continue to see a period of stability in the cash rate, although policy makers are treading the line between considering higher borrowing costs to prevent a property bubble from forming in the future. Mr Stevens noted that property prices have risen significantly over the past 12 months, while credit growth is slowly picking up. It’s important to note that the belief amongst many economists is that while population growth remains higher than the growth in the supply of housing, we will not be in a property bubble.

The national economy is continuing to show signs of improvement and financial conditions remain accommodative. Banks are well placed to provide adequate funding to worthy borrowers and many Victorians have seen this as an ideal opportunity to increase their property portfolio.

Investor participation in the property market is at a seven year high with 37 per cent of new home loans granted are to investors. Mark Hewitt, General Manager of Sales and Operations at AFG noted that investors have been driving the market for the past twelve months.

The Board believes that today’s decision is the most effective approach to foster sustainable growth in demand and inflation within the set targets.