Cash rate announced by RBA

by Rebecca Pike02 Oct 2018

The reserve bank of Australia has announced its October cash rate.

For the 26th month in a row the rate has been left unchanged at 1.5%.

RBA Governor Philip Lowe said, "The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."

While it was expected, with most experts predicting another stable month, many are considering whether the rate should move. However others believe the rate will remain at 1.5% beyond 2019 and into 2020.

Head of research at CoreLogic, Tim Lawless, said, “Amidst falling housing prices, low inflation and rising mortgage rates, the decision from the RBA to keep the cash rate on hold was widely expected; in fact financial markets aren’t expecting any move in the cash rate throughout 2019 and into 2020. 

“Despite the housing downturn gathering some pace in September, with CoreLogic’s national index recording the largest fall in dwelling values over any three month period since late 2011, we don’t expect the RBA to throw a lifeline to the housing market in the form of lower interest rates.

“Considering dwelling values comprise around 55% of household wealth and about 70% of household debt, the RBA has a keen interest in the housing markets performance. 

“Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August. 

“Despite the recent subtle rise in mortgage rates, indebted home owners continue to benefit from the lowest mortgage rates since the 1960’s. 

“Although we expect housing values to drift lower, such low mortgage rates, together with population growth and relatively strong economic conditions should help to keep a floor under housing prices.”

Steve Mickenbecker from Canstar finance also expected the rate to remain the same, saying, “There have been encouraging economic and budgetary signals, but nothing to suggest that inflation is on the way up. There is reluctance too, with the trade wars threat to global growth intensifying.”