Why tomorrow’s RBA meeting doesn’t matter

by Madison Utley03 Feb 2020

For months now, a large swathe of economists have predicted the next RBA cash rate cut to be made at tomorrow's February meeting; however, following the most recent inflation and employment figures which were largely in line with expectation, some now predict the central bank will hold off a bit longer. 

According to financial analyst Martin North, it doesn't matter either way. He believes the result of tomorrow's meeting, whether the rate is held or lowered, will have no material impact on Australians and their housing struggles. 

“There are two reasons for this. Firstly, the banks probably wouldn’t pass it all on anyway. They didn’t last time, and the margin compression they’re experiencing now is even worse," North explained. 

"Secondly, the difference of a quarter percent cut in terms of the real monthly repayments households are needing to make is going to be very limited. The trouble is most households have had no income growth now for a decade essentially, and yet the cost of living is very strong.

"We’ve got more than a million households that are registering in mortgage stress at the moment —  more than we’ve ever had before. Of the households with a mortgage, 32% are having difficulty making their repayments, as well as managing their finances generally.

"A small rate cut is not going to help them, neither will it really make much difference to those wanting to get a mortgage for the first time."

Further, RBA Governor Philip Lowe has communicated that 0.5% is the lowest rates can be taken where the reduction would still theoretically benefit the economy and so making the call for another cut has taken on a heightened gravity, North highlighted. 

"In other words, they’ve got one cut left to try and stimulate the economy further," he said.

However, considering that sentiment is at a seemingly all-time low, and with the slim likelihood that a rate reduction would truly benefit Aussie consumers anyway, a rate cut could have more of an adverse effect than anything. 

“Perception is already as dented as I’ve seen it, because of the bushfires. Confidence levels are really, really low at the moment and I don’t think rate cuts will do anything to repair it because it signals more trouble ahead," said North. 

"While Treasury and the Reserve Bank keeps talking up the economy, real households are saying, ‘We’re not seeing it. We’re not feeling it. We’re struggling with the day to day costs.'”