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The RBA leaves interest rates unchanged at 1%

The RBA has left the official cash rate unchanged at one per cent at its September meeting, however, more cuts lie ahead if global conditions continue to weigh on the economy.

In a statement that largely mirrored the August update, RBA Governor Philip Lowe suggested Australia is still in for an extended period of low interest rates.

“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,” Mr Lowe said.

Interestingly, he also noted that conditions in the housing market are improving.

“There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne.”

According to the RBA statement, these improved conditions have the potential to limit any further cuts going forward, in a bid to avoid another property bubble.

While the statement might not have changed the outlook, the fact that rates remain at record low levels with a dovish bias, means that any future rates might well be priced in already.

Mortgage Choice Chief Executive Officer Susan Mitchell believes that given the current environment, it might be worth taking advantage of the record low interest rates now.

 “My advice to borrowers who have been in the same home loan product for a while is: don’t wait to be offered a better deal on your home loan by your lender, because it won’t happen,” Ms Mitchell said.

“The RBA may have held the cash rate this month but we have seen a 50 basis point cut to the cash rate since June, which has made the interest rate environment extremely competitive.

“Lenders are fiercely competing for new customers, which puts borrowers in a great bargaining position if they are prepared to switch lenders.

“RBA Board members may be waiting to assess the impact of back-to-back cuts in June and July, which appear to be having a positive effect on consumer confidence, the housing and labour markets.”

At the same time, Finsure Managing Director John Kolenda believes that while there is global uncertainty surrounding the US-China trade tensions and the Brexit crisis, Australia’s economic fundamentals remain strong and there is no need for the RBA to panic with its already record low cash rate.

“As yet we haven’t seen any negative economic impacts hit the economy and we should be cautious in reducing rates too much and too quickly because it could possibly dislocate the economy in other ways as evidenced by what has happened to the economy in Japan and Europe,” Mr Kolenda said.

“Consumers should feel comfortable that the RBA, the regulators and the Federal Government have plenty of options up their sleeve to help the domestic economy navigate its way through any possible challenges.”

On the back of the decision, the door is still open to further cuts. Economics professor Tony Makin from Griffith University is one of the 61 per cent of experts who now expect the RBA to cut the cash rate in November.

“Previous RBA research suggested it takes up to 18 months for the effects of official interest rate changes to feed through to the wider economy.

“The RBA should therefore be waiting a little longer before cutting further, especially in light of the weaker dollar of recent weeks,” Mr Makin said.

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