RBA keeps interest rates at 1.5% due to housing concerns

According to the minutes of the Reserve Bank of Australia’s (RBA) March 17th meeting released to the press, it has decided to keep interest rates at 1.5%.

Though the RBA was generally bullish about Australia’s economy, which is presently shifting away from the mining success of the past 10 years, it expressed concern over the potential risks in the housing sector and the increase in the amount of debt within the country.

The warning from the central bank comes as worries of a bubble appear in Sydney’s property market, where prices have increased twofold since 2009. Melbourne prices are also soaring, with investors rushing to secure cheap money and invest it in property.

In contrast, post-mining boom Western Australia is seeing housing prices decline and businesses shutting down, underlining the increasing economic gap in the country.

According to Bloomberg Australia, the annual gross state product growth in Western Australian has declined to 1.9% from 9.1% over the last five years. In comparison, the number has nearly doubled in Sydney and Melbourne.

Figures released by the Australian Bureau of Statistics (ABS) shows that housing values in Sydney and Melbourne increased at a near-record rate in the December quarter, rising 5.2% and 5.3% respectively.

These figures strengthened fears of housing affordability in the two eastern cities. Also, there are worries of a potential oversupply of apartments in Brisbane.

It is not yet clear how the government will address the issue of housing affordability but in the meantime the RBA is pleased to keep interest rates at the historic-low of 1.5%.

The central bank’s view reiterates the ‘Big Four Banks’ previous statement that, while a housing bubble is just a possibility at this point, there are risks and the government must not be hasty when dealing with the property sector.