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The RBA keeps rates on hold

After two straight months of rate cuts, the RBA has left rates unchanged at one per cent. The move was widely expected and will mean borrowers will likely not see any changes to variable rates this month.

However, RBA Governor Lowe has suggested that the RBA stands ready and able to cut rates further if they are required to do so.

Previously the RBA has stated that it is looking to see the Australian unemployment rate tick below five per cent (currently 5.2 per cent) in a bid to stoke inflation. As recently as last week, inflation has started to move higher, meaning that the RBA could well hold off cutting rates for the time being.

According to Governor Lowe: “It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target”.

A prudent decision

Chief Executive Officer of Mortgage Choice, Susan Mitchell, believes a third cut would have been a little too much at the moment, given the economic conditions.

“The Reserve Bank’s decision to hold the cash rate steady this month was prudent. A third cut so soon after two consecutive cuts in June and July would not have given policymakers enough time to see if the cuts had any marked effect on the economy,” Ms Mitchell said.

“The latest economic data has provided the Reserve Bank with no incentive to reduce the cash rate three times in as many months, encouraging the Bank to continue its historically cautious approach towards monetary policy.

“In encouraging news for the housing market, the latest CoreLogic Hedonic Home Value Index revealed that national dwelling values stabilised in July as five of the eight capital cities recorded a rise, supported by a 0.2 per cent increase in values in both Sydney and Melbourne.

“It seems that two consecutive cuts to the cash rate and tax relief from the Government were not enough to improve consumer outlook. The Westpac Melbourne Institute of Consumer Sentiment revealed that consumer sentiment deteriorated in July, as concerns over the economy continue to weigh heavily on sentiment.

“On a positive note, the index revealed that housing-related sentiment improved in response to lower interest rates.”

Keep the gun loaded

Managing Director of Finsure, John Kolenda, believes the RBA should keep its powder dry and save future rate reductions for any further deterioration in the economy.

“After sitting on its hands for almost three years, the RBA made successive rate cuts to try and boost employment growth in times of global economic uncertainty exacerbated by the US-China trade dispute and concerns over Brexit,” Mr Kolenda said.

“Interest rates aren’t the only lever to stimulate the economy and the RBA for the time being can apply the handbrake on rates and see what impact income tax cuts, infrastructure spending and the stabilisation of house prices has on consumer confidence.

“The central bank needs to leave some fuel in the tank for potentially more headwinds, although it’s encouraging to see some positive signs in the economy coming through.”

While financial markets are expecting another 25 basis point cut this year, the important thing for borrowers and future borrowers alike to keep in mind is that interest rates are currently sitting at historic lows.

Home loan rates

While homeowners have benefited in the past few months from the RBA’s rate cuts, it is unlikely that there will be any cuts in the immediate months ahead. data shows the average home loan customer has received a rate cut of around 0.43 per cent over the last two months. Over the same period, the lowest ongoing variable rate has dropped by 0.55 per cent – but only for new customers. research director Sally Tindall said while further RBA cuts were still very much on the cards, it was unlikely they would come in the next couple of months.

“The RBA is back in a holding pattern. It wants time to see how the two consecutive rate cuts, and the government’s tax cuts, play out in the economy before resorting to yet another cut,” she said.

“Banks are slashing both fixed and variable rates for new customers so if you’re in a position to refinance, now is a great time to take advantage of this home loan rate war.

“Not one, but two lenders are now offering ongoing variable rates of 2.89 per cent, while three-year fixed rates are as low as 3.94 per cent.”

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