Nearly 70% of market experts and economists are predicting that the Reserve Bank of Australia (RBA) reduces the official cash rate at its meeting later today, 3 November, according to a survey conducted by Finder.
Of that group, the majority expects to see a cut of 15 basis points, bringing the cash rate to a new record low of 0.10%.
But would that be the right call?
According to the Australian National University’s Shadow RBA, a body comprised of ten distinguished macroeconomists who offer their own policy recommendation the Monday before the official decision, a cut would not be the best way forward.
However, it was a close call; in its latest meeting, the board indicated it is 56% confident keeping the cash rate on hold would be the right policy, and just 44% convinced a rate cut is needed.
The board noted the containment of COVID-19 and subsequent easing of restrictions within Australia, especially in Victoria, could improve the ABS unemployment rate currently at 6.9%; further, while the tax cuts in the federal budget “disproportionately benefit middle and higher income households”, the budget itself remains “expansionary” and, internationally, the Australian dollar is holding relatively steady.
Okay, but assuming the rate is cut?
Whether or not the RBA cuts the official cash rate in November only matters to Australia's mortgage market if the banks are willing to pass the reduction along to their customers, RateCity.com.au research director Sally Tindall pointed out.
“[RBA] Governor Lowe believes a rate cut now will help reduce the number of problem loans, but this will only work if the banks pass it on,” Tindall said.
“Record-low rates have been a shot in the arm for the tens of thousands of mortgage holders who have been able to refinance their loan during COVID. [But] at the same time there are hundreds of thousands of Australians who haven’t been so lucky, forced to put their mortgages on hold as they struggle to stay afloat. These are the people who need a rate cut, now more than ever.”
As such, Tindall feels strongly banks interested in doing the “right thing by these customers” need to pass any RBA cut – whether it comes today or further down the track – through to borrowers as quickly as possible.