RBA announces June cash rate

by Rebecca Pike05 Jun 2018

The Reserve Bank of Australia (RBA) has made a decision on the June cash rate.

For the 20th consecutive meeting the rate will remain at 1.5%, a record low which shows little sign of changing.

Most predictions estimated this would be the case, with only 2% of brokers in a survey at HashChing thinking otherwise.

While the RBA has said in the past the next move will be a hike, experts are now not expecting this until next year.

Tim Lawless, head of research at CoreLogic, commented on the decision. He said, “This is of little surprise given some of the underlying weaknesses still prevalent in the Australian economy. A 0.4% decline in the Australian housing market in the year to May, weak wages growth of 2.1%, high underemployment of 8.3% and core inflation at the lower bound of the RBA target range at 2%.

“Financial markets are not fully pricing in a rate hike until October 2019. That is despite the latest RBA forecasts suggesting headline inflation will reach 2.25% by the end of this year and unemployment will fall to 5.25%.”

Lawless said that while a stable rate environment is positive, we could see mortgage rates rising due to higher funding costs faced by lenders overseas.

He added, “At the end of May, standard variable mortgage rates for owner occupiers remained at their lowest level since 1965, averaging 5.2% and the average discounted rate is tracking even lower at 4.5%. The average three year fixed rate is lower yet again at 4.15%. Even if mortgage rates do rise, they are still well below the twenty year average of 6.8%. 

“Despite mortgage rates being low, activity in the housing market has slowed since 2015. CoreLogic’s latest estimates indicate the number of settled residential property sales is down 7.7% year on year and transaction numbers are 15.1% lower relative to the recent 2015 peak. 

“The latest figures on housing credit show the monthly rate of growth at 0.43% is the lowest since June 2013, dragged down mostly by less lending for investment purposes.  Credit policies are likely to remain tight, if not even tighter, with APRA advising lenders to focus more on reducing their exposure to high debt to income loans. As a result, we expect housing market conditions to continue their slow decline, at least from a macro perspective.”