December 2018: Interest rates on hold, Industry reaction

At its meeting yesterday (4 December 2018), the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 25th consecutive meeting.

“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low,” said RBA Governor Dr Philip Lowe.

“Credit conditions for some borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend. The demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased to an annualised pace of 5–6 per cent. Mortgage rates remain low, with competition strongest for borrowers of high credit quality.

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” he said.

The RBA will next meet on Tuesday, 5 February 2019.


“There had been no anticipation of a change, particularly at this point in the year, and [we] didn’t expect RBA to make a move in the near future,” said REA Group Chief Economist Nerida Conisbee.

“We’re expecting one more US interest rate rise this month – that’s the main difference to where we were last month – and this will continue to push up our mortgage rates. So [the Reserve Bank] will be waiting to see what happens next year.

“If things were running red hot they might look at it, but for now they’ll just be watching. I don’t foresee the rate rising until later next year, if at all,” she said.


1300HomeLoan Managing Director John Kolenda said the RBA has left its cash rate at the all-time low of 1.5 per cent since August 2016, with its last rate rise from 4.5 per cent to 4.75 per cent way back in November 2010.

“Since the central bank last lifted official rates there have been 12 rate reductions, with the RBA now staying on the sidelines for more than two years,” Mr Kolenda said.

“With no evidence of a significant improvement in the domestic economy, many forecasters expect the cash rate will remain on hold through 2019 and also the following year.

“That means a whole generation of mortgage holders could go an entire decade without seeing official rates rise, although they will have experienced out of cycle rate movements from lenders.”

Mr Kolenda said there is no need for the RBA to do anything at the moment with the mortgage market constrained by uncertain household consumption, falling property prices in Sydney and Melbourne, the fallout from the Hayne Royal Commission’s final report and the looming federal election.

“Borrowers face a very challenging lending environment, with banks toughening their lending criteria and conducting detailed examination of borrowers’ expenses and all forms of income used to service their repayments,” he said.

“But there is also strong competition between lenders for your business, particularly if you have encountered rate rises over the last 12 months. My message to mortgage holders is ‘never be complacent’. You should always be looking for the best home loan deal. Contact a mortgage broker to make sure you are getting the best terms possible and, most importantly, save money.”


REINSW President Leanne Pilkington said she expects to see the official cash rate remain at its current level through the first half of 2019.

“Subdued housing transaction activity and price declines in some markets make an interest rate increase in the near term an unnecessary risk,” Ms Pilkington said.

“A strong labour market will be a key factor supporting the economy as we look to the new year.”

The RBA cut interest rates by 25 basis points in August 2016 as well as May 2016. There were no changes to interest rates in 2017 and 2018.


“The longest period of interest rate stability on record has extended out another month, with the RBA keeping the cash rate on hold at 1.5% where it has remained since they cut the cash rate by 25 basis points in May and August of 2016. Considering the diversity of economic conditions, the hold decision comes as no surprise,” said CoreLogic Head of Research Tim Lawless.

“Labour markets are improving, but wages growth remains sluggish and inflation has softened. It’s a bit harder to gauge the RBA’s view on housing market conditions, with the RBA continuing to call out weakening conditions in Sydney and Melbourne.

“CoreLogic data to the end of November highlighted that the Sydney market has already recorded a 9.5% decline in values since peaking in July last year and will likely surpass the previous record peak to trough decline of 9.6% which was set during the last recession, between 1989 and 1991. Despite this weakness in the largest cities, dwelling values in Sydney remain 41% higher than they were five years ago and Melbourne values are still 38% higher, both of which show five-year growth rates well in excess of most other capital city markets.”

“Additionally, five of the eight capital cities have posted a capital gain over year to date; however, from a macro view they have much less of an influence on the national figures than Sydney and Melbourne do. To date we haven’t seen the housing downturn impacting on household consumption or saving; however, this is likely to be a key factor the RBA will be monitoring.”


Sally Tindall, spokesperson for, said it was doubtful the RBA would follow in the United States’ footsteps in the new year.

“The RBA has officially shut the door on a hike to the cash rate in 2018 and is unlikely to consider the possibility until late 2019,” she said.

“The RBA’s hands will be tied until at least after the next Federal election. In the meantime, inflation, wages growth and household debt have a lot of work to do.

“The good news is that Australian home owners can rest easy this Christmas. That said, now is the perfect time to stash a bit of money into the mortgage, instead of putting it all under the Christmas tree,” she said.

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