RBA's decision will affect brokers

by Calida Smylie05 Mar 2014
In no great surprise to the mortgage industry, the Reserve Bank of Australia opted at its monthly board meeting yesterday to keep the official cash rate on hold at the record low 2.5% for the sixth straight meeting.

Monetary Policy Decision governor Glenn Stevens said while growth in the global economy was a bit below trend in 2013, there are reasonable prospects of a pick-up this year due to an expanding US economy, a recovering Euro and a buoyant Japanese economy.

“In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates,” he said.

The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, but the dollar "remains high by historical standards", said Stevens, who has indicated in the past it is too high.
Major broking franchise Mortgage Choice spokesperson Jessica Darnbrough said it was the ongoing strength in the Australian economy that gave the Reserve Bank confidence in the current monetary policy setting.

“Moving forward, we expect the Reserve Bank to err on the side of caution and leave the cash rate on hold for the foreseeable future, which should encourage a greater number of potential home buyers onto the property ladder as they look to take advantage of the low interest rate environment.”

RP Data national research director Tim Lawless said from a housing market perspective the Reserve Bank will be viewing the strong market conditions as a positive scenario, driving investment in housing construction and having a healthy multiplier effect for the domestic economy. 

“Buyer demand remains strong across the housing market… [and] mortgage demand, as measured by activity across the RP Data valuation platforms, was at record daily averages during February.  As long as mortgage rates remain low we would expect housing market conditions to remain in positive growth territory, at least in trend terms.”

But 1300HomeLoan managing director John Kolenda declared the Australian economy to be 'in the slow lane' following the RBA's decision to again leave interest rates on hold.

“The RBA has no choice but to keep rates on hold and they may even have to lower the cash rate further if conditions deteriorate,” he said.

Kolenda argued there were no signs of economic revival, and painted a grim picture for the near future of the Australian economy.

“Unfortunately, unemployment is likely to rise with material pressure coming from many sectors of the market. Every week we hear companies talking about cutting jobs.

“The retail sector is still not showing sustained improvement, while the resources sector continues to slow."

One of Australia’s biggest comparison websites Finder.com.au is urging borrowers to stop waiting for an interest rate rise before fixing their home loan, following the Reserve Bank’s decision.

Finder’s money expert Michelle Hutchison said it is likely fixed home loans will start rising before the official cash rate increases and this is when many borrowers miss out on the big savings on offer.

“Our monthly Reserve Bank survey of leading economists expect interest rates to start rising within the next year. If variable rates move back up to the historical normal level of 7 percent, that will cost borrowers with the average $300,000 mortgage an extra $313 every month in repayments.”
The longest period in recent times for which the RBA kept the official cash rate on hold was between November 2010 and October 2011, when it was held at 4.75%