RBA makes August cash rate call

The Reserve Bank has made its monthly decision around whether to hold, raise or cut the official cash rate

RBA makes August cash rate call



The board of the Reserve Bank of Australia (RBA) has decided to keep the official cash rate steady at 1.5% in a move that has been widely predicted by economists and brokers across the nation.

All 35 economists polled in finder.com.au’s monthly cash rate survey said that the RBA would keep rates on hold. Likewise, of the more than 440 brokers polled by online mortgage marketplace HashChing, almost 94% forecast no change.

This means that rates have been on hold for an entire year with the last rate movement occurring on 3 August last year when rates were cut by 25 basis points.

The prospect of any rate movements in the immediate future were unlikely, CoreLogic head of research Tim Lawless said.

“With headline inflation tracking slightly below the 2-3% target range, labour markets tightening and the economy continuing to grow, albeit at a pace below trend, the chances of a rate cut appear to have diminished.

“However, rate hikes may be some way off as well; recent declines in the US dollar and strengthening commodity prices have placed added pressure on the Australian dollar, which may reduce export demand. Financial markets indicate the cash rate won’t rise until late 2018.”

The RBA board would have likely discussed the national housing market when it met today, he said.

“CoreLogic’s home value index showed a strong capital gain result in June and July. However the trend rate of growth suggests that the hottest markets, Sydney and Melbourne, have lost some steam after the first quarter of 2017. The slowdown in housing market conditions can also be seen in softer auction clearance rates relative to earlier in the year as well as higher inventory levels which are taking some of the urgency away from buyers.”

While the cash rate has stayed steady for so long, Lawless noted that mortgage rates have been edging higher since late last year particularly in the investor and interest only lending space.

“Higher mortgage rates against a backdrop of record high household debt levels and record low rental yields are gradually taking some heat out of the housing market and this situation is likely to have a further dampening effect on investor exuberance as credit policies continue to evolve.”

John Flavell, CEO of Mortgage Choice, was also unsurprised by the move given the state of the domestic and global economy.

“In the United States of America, soft inflation has encouraged the US Federal Reserve Board to dampen expectations of another rate increase over the short term. Meanwhile, in Australia, a lower than expected inflation result is on the Reserve Bank of Australia’s radar.”

The latest inflation data from the Australian Bureau of Statistics (ABS) also showed a below average 1.9% which is under the RBA’s target band range of 2-3%, he said.

“In addition to the lacklustre inflation result, the Reserve Bank’s cash rate decision would have been based on the latest developments in the property and lending markets as well as the latest movement in the Australian dollar.

“This morning, the Australian dollar hit 80.0 cents, up from 79.8 cents on Monday. The Reserve Bank would be acutely aware of this, and would be looking to balance the strong Australian dollar with soft inflation and ongoing changes in the lending markets.”

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