RBA makes October cash rate call

The Reserve Bank of Australia (RBA) has made its monthly cash rate announcement once again deciding to hold at 1.5%. This means it has now been 14 months since the rates changed in August last year.

This decision was widely expected by those within the Australian financial industry. All 31 experts in finder.com.au’s RBA survey predicted no movement with 85% expecting the next rate move to be up. Today’s hold decision was also forecast by more than 92% of mortgage brokers polled by HashChing.

CEO of Mortgage Choice, John Flavell, said that in making this decision the RBA Board would have had to take into consideration a number of global and domestic factors.

“On the domestic front, the economy is tracking well, with positive business conditions, improved consumer confidence and a relatively low unemployment rate,” he said.

“At a global level, things are also looking up. In the US, the Federal Reserve left the official cash rate on hold, citing a strengthening labour market and moderate growth in economic activity as the basis for their decision.”

Because of this, it was easy to see why the RBA decided to keep the cash rate on hold for the coming month, Flavell said.

The economic fundamentals are not strong enough for a rate increase, said Steve Mickenbecker, Canstar group executive of financial services.

“Even though the RBA has a tightening bias, economic conditions don’t support a move right now. Inflation is below the target range and wages growth is slow. The economy just won’t take off.

“On top of that the RBA wants to see a lower Australian dollar, to stimulate growth. A rate increase would encourage the opposite reaction.”

The RBA is also nervous about triggering a property correction in a low growth environment, he said.

However, CoreLogic head of research Tim Lawless said that softer housing market conditions and signs that macro-prudential measures have cooled rapid growth in Sydney and Melbourne were likely to be viewed as welcome outcomes by the RBA.

“CoreLogic’s hedonic home value index reported the first month-on-month decline in Sydney dwelling values since March last year when the previous round of APRA regulatory changes were flowing through to credit policies and reducing investor participation.

“That previous slowdown in housing market growth reversed when the cash rate was cut in May and August last year and investment credit growth accelerated.”

A similar rate cut will not be likely this time round, Lawless said, predicting a continued easing of growth across the Sydney and Melbourne housing markets.