RBA will not cut cash rate, says majority of experts

by John Maguire02 May 2016
A new survey has found that 96% of economists and experts believes the RBA will resist lowering the cash rate of 2% at Tuesday’s board meeting, completing 12 months without fluctuation.

In research conducted by comparison website Finder.com.au, 27 out of 28 experts predicted that the cash rate will hold. The last change came in May 2015, when the rate was reduced by 0.25%.

Experts cited a robust labour market, the recovering Australian dollar and Tuesday’s Federal Budget as reasons for the lack of any change.

As far as potential rate changes for the months ahead are concerned, 55% thought a rate cut would occur before 2016 is out. Forty-five percent believed change would not come until 2017 – all who held this opinion projected a rise in cash rate rather than a fall.

Financial expert at Finder Bessie Hasson believes the sustained rate is good news for first-home buyers, and also augers well for mortgage brokers.

She told Australian Broker, “It’s arguably good news for mortgage brokers if the cash rate if the cash rate holds at 2%, as it means the RBA has confidence in the stability of the Australian property market, despite tightened investment lending conditions.”

The Finder report notes that the average standard variable home loan rate (5.21%) may not hold for much longer, with each of the big four banks not having altered their variable rates in five months.

“We’ve seen several out-of-cycle rate changes over the last few months, so the movement of the average standard variable rate is no longer tied directly to the RBA cash rate,” said Hasson. “Despite a static RBA cash rate for a year solid, we’ve seen the average variable rate across bank loans fluctuate through the year, with an overall drop from 5.43% in May 2015 to 5.21% now.

“This doesn’t mean rates will necessarily continue to drop, as banks may try to leverage more profit from standard variable customers to cover investment losses.”