RBA makes September cash rate call

by Miklos Bolza05 Sep 2017
The Reserve Bank of Australia (RBA) board has decided to hold the official cash rate at 1.5%, meaning it has now been 13 months since rates changed in August last year.

This decision was widely predicted by finance and economics specialists around the country including the entire panel of 33 experts polled in the finder.com.au RBA Survey and 93.6% of all mortgage brokers interviewed by HashChing.

CoreLogic head of research Tim Lawless said further evidence of slowing housing market conditions in Sydney and Melbourne was likely on the table when the RBA board made this decision today.

“These are the two housing markets that have caused the most concern for policy makers because of the previously high rates of capital gain that had been running since early 2012, coupled with record high levels of household debt and high concentrations of investment,” he said.

Tighter credit policies have done a lot of the heavy lifting with regards to cooling the markets in Sydney and Melbourne, he added, saying that a cash hike is “highly unlikely” to occur this year. This was especially possible thanks to higher rates for investment and interest only borrowers which were contributing to the market slowdown.

“Importantly, mortgage rates for owner occupiers are generally unchanged, and for some products have actually fallen over recent months.”

The hold decision will be welcome in markets outside of Sydney and Melbourne, he said, where regulatory and lending change imposed nationwide is generally seen as harmful amidst mild to negative growth conditions.

Mortgage Choice CEO John Flavell said the RBA’s decision was “unsurprising” due to the stance indicated in the August board meeting which said that an extended period of stability would continue to drive growth in the economy.

Australian families are also feeling the pressure when it comes to finances and interest rates with fewer feeling optimistic about the future.

“The Reserve Bank is acutely aware of this and understand that now is not the right time to adjust the monetary policy setting,” he said.

Steve Mickenbecker, Canstar group executive of financial services, said that while the RBA wanted to return the cash rate to the neutral level, its “hands are tied” thanks to a low inflation rate. However, the slow down in Sydney and Melbourne were putting the pressure off the Reserve Bank, he added echoing the sentiments of Lawless from CoreLogic.

“With the focus on curbing investment and interest only lending, the good news for owner occupiers who are repaying principal and interest is they aren’t likely to see much in the way of out-of-cycle rate increases for now.

“Investors can probably look forward to further increases, as the banks look to build margin to deal with higher capital needs, taxes, caps on credit card interchange and liquidity costs on short term deposits.

“Hopefully owner occupiers on interest only will be given a break from rate increases. This group is likely to have higher LVRs and are most likely to be under financial pressure to keep themselves out of mortgage stress. They also present the highest risk to lenders and their insurers.”