RBA announces first cash rate of 2020

by Madison Utley04 Feb 2020

The Reserve Bank of Australia has announced its first cash rate decision of the new year.

The rate has been kept on hold at its current record low of 0.75%, where it has sat since October 2019. 

Following the release of the most recent data which showed a lowered unemployment rate and an uptick in the inflation rate, the outcome of today’s meeting was generally expected.

What it means for brokers

Despite the RBA's decision not to take rates lower, brokers should still anticipate a rise in market activity, according to Loan Market executive chairman Sam White. 

“There’s been a shortage of listings in the market over the summer break, which is common,” he explained. 

“After a surge in activity in late spring, sellers held off from listing at the back end of 2019, but we are starting to see more listings come back on the market.

“In 2020, with the introduction of Best Interests Duty and a surge of listings, I expect customers will seek out brokers even more, as we continue to strengthen the trust we’ve built in the marketplace.”

In fact, White feels the decision to hold steady should be viewed as a positive sign by consumers and brokers alike, infusing some much-needed confidence back into the system. 

"The RBA is keeping the powder dry; this decision means the people looking at the macro-financial factors are seeing positive signs in our economy," he said. 

What it means for the housing market

Tim Lawless, head of research at CoreLogic, did not expect a cut today but is calling for one later in the year. He noted that while the lower interest rate environment has failed to lead to a material improvement in economic conditions thus far, it has stimulated the home sector.

“Housing markets have well and truly responded, with national housing values rising 6.7% since the first rate cut in June through to the end of January,” he said.

“We may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9% over the year to November, driven by a 10% increase in owner-occupier commitments."

However, Canstar group executive of financial services, Steve Mickenbecker, has expressed doubts around the carry-through impact of the Reserve Bank’s future decisions on the housing market.

“A cash rate cut at this point wouldn’t stimulate anything other than Sydney and Melbourne house prices, with the banks unlikely to pass on cuts of more than 0.15% and home buyers using this to pay off their home loan sooner rather than spending,” he said.

What it means for Aussies

The impact of the RBA's monthly cash rate decision on the average Australian will always be a two-sided coin, carrying a different meaning for borrowers and deposit holders; today's hold likely comes as a relief for the latter group. 

“A steady cash rate will please savers who have taken knocks in the last fortnight, with two of the major banks cutting savings rates. ANZ’s base savings rate is now down to 0.05%, precariously close to zero,” said Mickenbecker.

While the current low-rate environment is a negative for savers, mortgage holders are well-positioned to leverage the situation ⁠— something that can only happen if they're aware of their options.

“There are over 270 owner occupied home loans listed on Canstar with a rate starting with a two,” said Mickenbecker.

“Borrowers have to start lobbying their bank for a better deal and be prepared to move their loan to get it.”