Cash rate decision is out

by Manuelita Contreras06 Feb 2018
The RBA has kept the official cash rate on hold at 1.5%, continuing its longest run of low interest rates.

This marks the 18th consecutive month the RBA has kept the rate steady since it cut the official cash rate by 25 basis points in August 2016.

Forecasts by economists and surveys ahead of the RBA meeting all pointed to the central bank holding the rate steady.

100% of finder.com.au’s rate experts forecast the rate to hold at 1.5%, while RateCity’s RateForecaster showed 22 of the 23 economic indicators studied pointing to the same direction.

In a recent survey of brokers, HashChing found that more than 93% believed the rate would remain on hold.

Mortgage Choice CEO John Flavell said he is not surprised to see the RBA once again leave the cash rate on hold.

"The strength of the Australian economy against a backdrop of prolonged cash rate stability would no doubt provide the Reserve Bank with the confidence they need to believe their current stance on monetary policy is the right one," he said.

Analysts had said the RBA might just try to buy more time as new updates to the Consumer Price Index tamed the inflation outlook.

Mortgage stress would also weigh on the RBA, with wages growth too low to provide relief for recent home buyers, said Canstar group executive, financial services, Steve Mickenbecker yesterday.

“Those already stretched borrowers on interest only payments have had a 0.5% interest rate increase, even without the RBA moving,” he said.

Economists expect the RBA to eventually lift its cash rate in 2018 – but only later in the year. HSBC said last month that it expected the RBA to make its first hike in the second quarter of the year.

AMP Capital chief economist Shane Olive forecast a rate hike not to come that early, saying that the reserve bank will not increase the official cash rate “until late 2018 at the earliest”.

Ellerston Capital global economist Tim Toohey said the RBA will start lifting the rate in the second half of the year as part of a three-year tightening process that will see the rate go up by 125 basis points.

But Toohey said households need not fear the prospect of higher rates.

"On our forecasts, the net impact of raising interest rates by 125 basis points on household income over a three-year period would be entirely manageable. Indeed, the Australian household sector in aggregate is unlikely to shed too many financial tears as the RBA steadily recalibrates policy settings towards neutral," he said.

DailyFX analyst David Song said the RBA might keep the current cash rate throughout the first half of 2018 as it worried over weak consumer spending. 

The RBA said at its board meeting last December that the outlook for household consumption remained a significant risk amid slower income growth and high levels of debt.

For mortgage holders, it is a good time to refinance and get ahead on their mortgage repayments, so they have a buffer for when interest rates rise, said RateCity money editor Sally Tindall.

Irrespective of the cash rate, interest rates have been going down since spring for owner occupiers making principal and interest repayments, said Mickenbecker.

“70 loans have moved down in the past two months. Rates are the lowest in living memory.”
 

COMMENTS