Yesterday (2 October 2018) the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 24th consecutive meeting.
“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low,” says RBA Governor Dr Philip Lowe.
“Growth in credit extended to owner-occupiers remains robust, but demand by investors has slowed noticeably as the dynamics of the housing market have changed. Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality,” he said.
The RBA will next meet on Tuesday, 6 November 2018.
“The US rate rise shows how strong their economy is growing, and the global economy. It’s taking a while for Australia to catch up,” said REA Group Chief Economist Nerida Conisbee.
“It definitely helps with Australia’s economic growth, but to understand our interest rates we need to look at other factors like the job vacancy rate, which is currently the highest ever recorded,” she said.
“Really good employment numbers are out; GDP is at its highest number for six years. Pressure is slowly building for a rate rise but consumer spending and wage rises still need to catch up.
“The US rate rise will affect our mortgages, which will slow down our economy anyway, so it actually gives the RBA less reason to raise rates,” she said.
“Amidst falling housing prices, low inflation and rising mortgage rates, the decision from the RBA to keep the cash rate on hold was widely expected; in fact financial markets aren’t expecting any move in the cash rate throughout 2019 and into 2020,” said CoreLogic Head of Research Tim Lawless.
“Despite the housing downturn gathering some pace in September, with CoreLogic’s national index recording the largest fall in dwelling values over any three-month period since late 2011, we don’t expect the RBA to throw a lifeline to the housing market in the form of lower interest rates.
“Considering dwelling values comprise around 55 per cent of household wealth and about 70 per cent of household debt, the RBA has a keen interest in the housing market’s performance. Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August.
“Despite the recent subtle rise in mortgage rates, indebted home owners continue to benefit from the lowest mortgage rates since the 1960s. Although we expect housing values to drift lower, such low mortgage rates, together with population growth and relatively strong economic conditions, should help to keep a floor under housing prices.”
1300HomeLoan Managing Director John Kolenda said it will be no surprise to see the RBA stay on the sidelines and keep official rates at the all-time low of 1.5 per cent until well into next year and possibly longer.
“This is certainly no time for the RBA to contemplate lifting rates as they have to help navigate us through these uncertain times,” Mr Kolenda said.
“There are many factors pointing to the RBA maintaining the cash rate at its present low for the long term. There are some good signs for the domestic economy with low unemployment and signs of more first home buyers getting back into the market. But the Royal Commission findings due next year and other elements, such as the US-China trade war, downward pressure on the property market and the federal election looming, could all influence consumer confidence in a negative way, troubling our economic conditions,” he added.
“Lenders have already raised their rates out-of-cycle. If the RBA followed suit that would only be detrimental to consumer confidence in a falling housing market.”
Mr Kolenda said while borrowers continue to deal with a tough lending environment, there is still strong competition among lenders for their business.
“My main message to home loan customers is to never be complacent about your home loan and become a mortgage prisoner,” he said.
“You should continue to look for the best home loan deal. Seek the expert assistance of a mortgage broker to make sure you are getting the best terms possible and save money.”
REINSW President Leanne Pilkington said most of the majors and a raft of smaller lenders have already taken matters into their own hands and adjusted their rates despite the RBA’s hold position.
“Consumers are right to be sceptical about the attempts to justify these adjustments, especially against the backdrop of easing house prices,” Ms Pilkington said.
“But there’s no justification for the RBA to exacerbate the situation.
“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,” Ms Pilkington said.