What does the future hold for the cash rate?

The official cash rate is important for anyone pondering a real estate investment. It impacts the affordability of finance, and also has a considerable impact on consumer sentiment.

It's therefore not surprising that many property market analysts are keen to see what 2015 has in store for interest rates, especially as the Reserve Bank of Australia (RBA) is yet to hold its first meeting of the year. Scheduled for February 3, the gathering will show just how well the RBA thinks the economy is performing, as well as whether it is in need of some extra assistance.

The consensus is that interest rates are unlikely to increase any time soon. Kingston University's Head of Economics, Politics and History Steve Keen recently spoke to the Finance News Network and suggested the cash rate could end the year around the 2 per cent mark.

"I can see them [the RBA] making a couple of cuts this year, and possibly more than that," indicated Dr Keen.

A combination of rising unemployment and the growing threat of a housing bubble may mean that action needs to be taken sooner rather than later – and the Housing Industry Association (HIA) seemingly agrees.

Commenting on the latest inflation figures, the HIA suggested that the logical step would be to ensure that interest rates remain very low this year. Cost of living pressures are rising, which the group indicated should lead to some monetary policy relief being offered.

Reduced interest rates may give extra incentive for people to seek a Melbourne property investment, especially with conditions currently working in their favour.

Speaking last month, HIA Chief Economist Harley Dale said: "In reflection of the uncertain and challenging economic environment we face, steady interest rates would more likely be interrupted in the short term by a further reduction rather than an interest rate hike."

Posted by Sara Pritchard