Experts united on RBA cash rate call

by Miklos Bolza04 Jul 2017
The Reserve Bank of Australia (RBA) is due to make its official cash rate decision later on today with the vast majority of economics and financial experts predicting the rate will remain on hold at 1.5% yet again.

In finder.com.au’s RBA Cash Rate Survey, 34 out of 34 economists said there would be no change – a move which will leave the rate steady for the 11th month running.

“There is no urgent reason for the Reserve Bank of Australia to adjust the current cash rate setting. All of the latest economic data is looking fairly positive at the moment, providing the RBA with no incentive to adjust their long-standing plan of attack,” said Mortgage Choice spokesperson Jessica Darnbrough.

Kishti Sen, senior economist at BIS Oxford Economics, explained why the RBA would choose not to drop the cash rate, predicting that the rate would remain on hold at 1.5% throughout 2017 and 2018.

“The Reserve Bank is keen to limit the amplitude of the residential cycle amid concerns about household debt and financial stability risks. Hence, it would not want to reignite the housing boom. A lower cash rate will reduce the dollar but it will have little effect on investment.”

Michael Witts, treasurer at ING Direct, said the slowdown created by lender adjustments to investment and interest-only rates would enable the RBA to maintain the cash rate at its current level.

Steve Mickenbecker, Canstar group executive of financial services, said the better question was not whether the RBA would increase rates but whether anyone was watching.

“The banks have already moved rates up multiple times since the Reserve Bank cut in August 2016, mainly for investors but also for interest-only owner-occupiers, probably the highest stressed group in the market. These two groups of borrowers are doing the heavy lifting to slow the property market and to lift bank margins.

“Sure if the Reserve Bank moved the cash rate up, the banks would follow up with home loan rate increases, probably including owner occupiers. They would also move some deposit rates up and may even increase business loan rates too. But with interest only investment rates up by near enough three Reserve Bank 25 basis rate rises, there seems little reason for the Reserve Bank to move further now.”

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