Interest rates on hold in March

Interest rates remain on hold at 2.5% for the seventh month in a row.

The Reserve Bank of Australia yesterday kept its finger on the pause button, with Governor Glenn Stevens citing rising unemployment and a declining wage growth among the reasons for interest rate stability.

“Some indicators of business conditions and confidence have shown improvement and exports are rising,” he said.

“At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative. Public spending is scheduled to be subdued.”

Read the full RBA decision.

Commercial property experts welcome the interest rate stability.

JLL Director, Research and Consulting, Leigh Warner says continued low interest rates will buoy business confidence, stimulate jobs growth and help ease the patchy occupier demand.

“It would also support continued strong investment demand and in some cases capital growth to offset pressure on rental income,” he says.

But Warner says the decision to leave rates unchanged would not necessarily have been an easy one for the RBA.

“There is now more evidence that lower rates are stimulating consumption and housing activity and the RBA will be somewhat concerned that the lower Australian dollar will add to inflationary pressures by boosting import prices,” he says.

“This concern about letting the inflation genie out the bottle needs to be balanced against a still weak labour market and recent poor headlines about job losses that risk sapping domestic confidence.”

CBRE Head of Research Stephen McNabb says the mix of growth is shifting after the mining investment boom.

“The private CAPEX figures released last week by the ABS showed that business investment expectations for 2014/15 were soft, although this has largely been factored into forward expectations for the economy,” he says.

McNabb says consumption, housing and net exports are driving growth, helped along by the low Australian dollar.

“We think this is good news for a number of property sectors, supporting a recovery in rent cycle for retail and industrial assets.

Knight Frank National Director, Research, Matt Whitby says house prices and the share market have risen against the backdrop of rising unemployment and bad news from companies including Qantas, SPC and Toyota.

“This is being mirrored in the commercial property sector, with excess equity and debt capital flowing into the sector, driving prices higher and yield lower, set against a backdrop of weak occupier demand and benign rental growth,” Whitby says

But he says the low dollar and low interest rates mean there are “tentative signs” of growth returning in occupier markets.

“In the office sector, tenant enquiry in the Sydney and Melbourne markets is on the rise and retail sales growth is picking up, which should support fundamentals in the retail sector.”

Savills’ Clinton Baxter, Head of City Sales in Victoria, believes the RBA decision will encourage local and foreign investment in property.

“Following record investment into Australian commercial property in 2013, the platform is well set for another record year in 2014,” he says.

Baxter says stable interest rates will give confidence to small and medium-sized businesses, “leading to acquisition of commercial properties for owner-occupation and self-managed superannuation funds’’.

Colliers International Director of Research Mark Courtney says the wider property market will benefit from the on-hold decision.

“In particular, access to bank finance at relatively affordable rates is providing ongoing stimulus to the Australian residential market,” he says.

“The strength of the housing market is continuing to provide a bright spot in the economy, which has otherwise been marked by a spate of announcements of significant job losses by some iconic national companies.

“The stability of dwelling values assists to justify the Banks decision to keep rates on hold. And while discounted variable rates sit at around 5.10 per cent and three year fixed rates at around 5.30 per cent, the residential market will continue to provide an ongoing positive contribution to economic growth.”

Read more about what the interest rate decision means for the residential market.