RBA holds cash rate at 1% but a further cut looks likely

The RBA has resisted cutting the cash rate again at today's meeting.

The RBA's decision to hold the cash rate at a record low of 1% was widely expected, coming after two consecutive months where the cash rate was slashed by a total of 50 basis points.

The pause in the cutting cycle will give the RBA time to assess the effects of earlier rate cuts on the economy and consumer spending, however there is a strong likelihood of at least one more cut later this year.

The housing market has been a key beneficiary of lower mortgage rates, with a trend towards stability over the first half of the year converting to a subtle rise in capital city housing values in July.

The improvement in housing market trends can't be attributed entirely to lower interest rates, there has also been the added stimulus of looser home loan serviceability assessments, following APRA's decision to scrap the minimum 7% interest rate floor used to assess a borrower's ability to repay a mortgage, as well as the confidence injection post federal election and tax cuts for low-income earners.

With mortgage rates set to remain low for an extended period of time, as flagged by RBA Governor Lowe in a speech last month, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery.

However with credit policies remaining tight and economic uncertainty still elevated, we aren't expecting a material acceleration in housing activity or housing values.

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