RBA makes December cash rate call

by Miklos Bolza05 Dec 2017
The board of the Reserve Bank of Australia (RBA) has decided to keep the official cash rate on hold at 1.5%. This makes it the 16th consecutive month on hold since rates were cut by 25 basis points in August last year.

The move was predicted by almost all finance and economics experts across the sector with the general consensus that the RBA will continue to hold rates for some time to come.

All 33 panellists from finder.com.au’s RBA cash rate survey forecast a hold call this month as did more than 91% of brokers polled by mortgage marketplace HashChing.

“Anaemic inflation, combined with a drop in consumer sentiment, and non-existent property price growth over the last month, will encourage the Reserve Bank to leave the cash rate on hold once again,” said Jessica Darnbrough, head of corporate affairs at Mortgage Choice.

Michael Witts, treasurer at ‎ING, said that there was no need for the RBA to take action at this time with the economy running in line with Reserve Bank expectations.

Shane Garrett, senior economist at the Housing Industry Association (HIA), said Australia needed interest rates to stay low for the moment.

“General inflationary pressures are well under control – but several components of demand are below par and need a supportive interest rate backdrop.”

Steve Mickenbecker, Canstar’s group executive of financial services, said that while the RBA would like to start moving towards a neutral cash rate of 3.5%, low inflation and wage growth have prevented this for now.

“The regulators are of the view that borrowers are overstretched, meaning that home loan rate increases in an environment where wages have not grown, could result in widespread arrears and default.”

He predicted that rates would remain steady during the first half of 2018, bringing the total period of cash rate stability to around two years.

“We just have to see wage growth first, and if we haven’t by the middle of next year, the RBA might even have to review its tightening bias.”