With the Australian economy still feeling the full impact of social distancing measures, the RBA has made the decision to leave interest at a record-low 0.25 per cent.
The RBA made two rate cuts in March, including an emergency cut that saw the official cash rate fall to its lowest level on record.
It was widely expected that the RBA would leave rates on hold this month and it appears they will be staying low for the foreseeable future.
In the accompanying statement, RBA Governor Philip Lowe said rates will be staying at current levels until the economy can start to turn things around, which could happen later this year.
“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band,” Governor Lowe said.
“The global economy is experiencing a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and a sharp rise in unemployment is occurring. At the same time, the containment measures have reduced infection rates in a number of countries.
“If this continues, a recovery in the global economy will start later this year, supported by both the large fiscal packages and the significant easing in monetary policies.”
Low rates to support housing
CoreLogic Head of Research, Tim Lawless, says there is little chance rates will rise any time soon.
“The RBA has indicated unemployment is likely to peak around 10 per cent in June and inflation could turn negative over coming quarters.
“Arguably, it’s safe to assume neither of these indicators will be in a position to trigger an increase in the cash rate target for at least the next couple of years.”
Mr Lawless feels that with rates so low, it will potentially help support housing in the coming months.
“The cash rate setting translates to extremely low mortgage rates. Average variable mortgage rates for owner occupiers are below 3 per cent while investor variable mortgage rates are in the low 3 per cent range. Fixed term mortgage rates are even lower.
“Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation.”
No surprise given the climate
Mortgage Choice Chief Executive Officer Susan Mitchell said it was not a shock to see rates kept on hold, but the next move will likely be up.
“With the cash rate sitting at the effective lower bound, the only way to go is up but not before key economic indicators show sustained improvement,” Ms Mitchell predicted.
“Lowe also indicated that the next move to the cash rate would be up, and the next move will not occur until we make sustainable progress towards the Bank’s goals for full employment and inflation.
“The housing market is proving resilient to the impacts of the COVID-19 pandemic. While social distancing measures have dampened activity in the property market, dwelling values continue to grow.
“A record low cash rate means we are seeing some of the lowest mortgage interest rates in history, which is driving borrowers in droves to chase better deals over new property.”
A time to refinance
Finsure Managing Director John Kolenda said with the RBA keeping its cash rate at all-time lows, consumers who have not lost their jobs as a result of the COVID-19 pandemic have been seeking better home loan deals.
“We have seen a surge of interest in refinancing in response to COVID-19, with interest rates in the low two per cent range on offer,” Mr Kolenda said.
“With some fantastic deals on offer from lenders, it’s a great time to refinance and those that meet the lending criteria are certainly prepared to shop around for a better deal.”
