Rates on hold for now but more cuts are coming

Today Philip Lowe announced that the RBA would be holding the official cash rate at 0.75%. This announcement was widely predicted despite the earlier conviction that today would see a rate cut.

There are a couple of reasons that the RBA decided to hold the official cash rate. The first is the unexpectedly good news from the job market. The unemployment rate fell to 5.1% in the December quarter last year. This is reason alone for the RBA to think that the 3 rate cuts last year are having the hoped-for impact. The Reserve Bank doesn’t like to jump the gun. Given the employment rate boost, the RBA will be happy to wait and see if the previous rates cut are sufficient before lowering the rates again to 0.5%.

The other reason to hold as is, is the housing market. The latest property figures, particularly in Melbourne and Sydney show there is strong bidding for properties, with house prices on the rise.  In RBA words there is a “pick-up” in the housing market. It’s another sign that the low interest rate is having the desired stimulatory effect on the economy.

According to CoreLogic’s latest report Melbourne annual dwelling values are up by 8.2% and Sydney’s by 7.9%. The RBA will be looking to avoid any potential property boom, particularly given the high levels of household debt and lower-than-desired wages growth.

So for now, the RBA will be happy to sit in watch mode. In today’s statement the RBA acknowledged a few “sources of uncertainty” including the US-China trade tensions and the impact of the Coronavirus on the Chinese economy and beyond.  The impact of this summer’s devastating bushfires and the ongoing drought on the economy is yet to be fully realised.

One thing is for sure though. The next rate change will be a cut with most economists expecting the official rate to drop to 0.5%.  As Philip Lowe stated today, the RBA is prepared to further ease monetary policy (cut the interest rate). Today’s announcement highlighted that ‘due to both global and domestic factors… an extended period of low interest rates will be required in Australia to reach full employment and achieve target inflation”.

This is good news for home-owners and those looking to get into the property market. As we always suggest, make sure you are taking advantage of the historic low cost of borrowing. Is your bank passing this discount on to you? Or could you be doing better? Contact us and we’ll make sure you’re getting the best loan for you and your situation.