RBA holds rates for now but prepares to cut in future

For so long these updates have been easy to write. Month after month, it was basically the same message – “At today’s meeting the RBA decided to hold the official interest rate…” Then 5 months ago the RBA cut rates once, twice and then a third time down to the historic low of 0.75% at last month’s meeting. No wonder there was lots of speculation around today’s decision. Would they cut again? How low is the RBA prepared to go or would they wait and see?

Well, the short answer is the RBA will hold fire on another interest rate cut – for now at least. In fact, we may see the RBA hold the official rate at 0.75% for a few months to come. The reasons for restraint are complicated but there are several factors that come into play.

In today’s statement, the RBA said “while the outlook for the global economy remains reasonable, the risks are tilted to the downside”.

Recent inflation data shows that inflation has grown in annual terms and is on track to achieve the target rate that the RBA desires (albeit very, very slowly).  The recent bump in the unemployment rate and a slight, almost imperceptible improvement in real wage growth are potentially signs that the economy has achieved the ‘gentle upturn’ that Philip Lowe is fond of mentioning. It’s enough of a reason to hit pause for now on interest rate cuts.

But it is only a pause. The economy will need further stimulus to really kick into gear. The most recent retail spending data is another sign that the economy is not firing on all cylinders at the moment.

So while there are many factors at play, it is clear that low interest rates are here to stay for a while. It’s also clear that the next movement in the official cash rate will be down not up.

For now the RBA is prepared to wait and see how things fall over the next couple of months. Philip Lowe will take dramatic action if required (negative interest rates anyone?).

For homeowners and property investors, borrowing money remains cheap by historical standards. It’s as important as ever to keep an eye on your official mortgage rate to make sure your lender is passing on any rate cuts to you. Contact us to do a home loan health check, we’ll make sure you’re getting the best deal for you whether you’re a first home buyer, upsizing or building your property portfolio.