Yesterday (5 March 2019), the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 27th consecutive meeting.
Here’s a quick rundown of what went down!
With respect to the housing market:
- After the earlier large run-up in prices, the adjustment in the Sydney and Melbourne housing markets is continuing as conditions remain soft in both markets and rent inflation remains low.
- The demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed.
- Meanwhile growth in credit extended to owner-occupiers has eased further as mortgage rates remain low and there is strong competition for borrowers of high credit quality.
With respect to jobs and unemployment:
- There has been a significant increase in employment while the unemployment rate is at 5 per cent.
- A further decline in the unemployment rate to 4¾ per cent is expected over the next couple of years.
- The improvement in the labour market should see a gradual lift in wages growth over time.
With respect to growth:
- The Australian economy is expected to grow slowly by around 3 per cent this year.
- The growth outlook is being supported by rising business investment, higher levels of spending on public infrastructure and increased employment.
- Despite this, the main domestic uncertainty continues to centre around household consumption in the context of weak growth in household income and falling housing prices in some cities.
- A pick-up in growth in household income is nonetheless expected to support household spending over the next year.
With respect to inflation:
- Inflation remains low and stable.
- Underlying inflation is expected to pick up over the next couple of years, it’s likely to be gradual and to take a little longer than earlier expected.
- The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020.
- Headline inflation is expected to decline in the near term because of lower petrol prices.
- 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.
The Reserve Board Members concluded that with the available information, the monetary policy would remain unchanged to stay consistent with sustainable growth. In order to achieve the set inflation target over time.
“Although the cash rate remains unchanged since August 2016, there is a growing possibility that rates could fall later this year,” said CoreLogic head of research, Tim Lawles.
“No doubt the RBA are tracking housing market conditions very closely, watching for any further deterioration that might signal a dent to consumer spirits, resulting in less spending, more saving and a further pull back in residential construction activity.”
“CoreLogic reported another broad based decline in dwelling values in February, down 0.7% nationally, however, the good news was that the rate of decline has eased over the past two months and housing affordability is showing a consistent improvement across most housing markets.”
Nothing new in #RBA statement. Notes strong labour mkt along with slowdown in Aust economy in second half last year. Still sees consumer as main domestic uncertainty. On hold and bias remains neutral (but only ever mentioned in the minutes). We still see 2 cuts this year
— Shane Oliver (@ShaneOliverAMP) March 5, 2019
— RateCity.com.au (@RateCity) March 4, 2019
Paul Marshall, CEO at RateCity.com.au, said banks were slashing rates in a bid to win market share.
“Home lending tumbled last year and as a result the banks are throwing everything at fixed rates to keep customers coming through the door,” he said.
“The lowest 3-year fixed rate is 3.64 per cent, while 5-year rates start as low as 3.74 per cent – that’s fixed until 2024.
“There are some great rates being offered at the pointy end of the competition, for both fixed and variable, so it’s a great time to review your home loan.”
“RBA board members have made the decision to hold the cash rate once again, but there is mounting speculation that there may be as many as two rate cuts this calendar year,” said Susan Mitchell Chief Executive Officer of Mortgage Choice.
“Throughout most of 2018, the RBA signalled that the next cash rate move would likely be up, however its tone seems to have shifted.
Finsure Managing Director John Kolenda said the RBA is expected to maintain its cash rate at the all-time low of 1.5 per cent for a few more months even though there is pressure to cut rates for the first time since August, 2016.
“There are political distractions for the RBA with the federal budget handed down on April 2, the same day the central bank next deliberates on rates,” Mr Kolenda said.
— James Glynn (@JamesGlynnWSJ) March 5, 2019
“Then there is the federal election, which is due by mid-May. Like the Budget, the election outcome and a potential change of Government will have a significant economic impact which the RBA will need to factor in.