No change in February 2019 by RBA


The Reserve Bank has kept the official cash rate on hold for its first meeting of 2019, but a growing number of experts are tipping a rate cut some time this year.

This afternoon’s cash rate decision, coming in the wake of the banking royal commission’s scathing final report and accelerating house price declines in Sydney and Melbourne, extends Australia’s longest ever period without a change to 30 months.

“The housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices,” RBA governor Philip Lowe said in his statement. “Conditions have weakened further in both markets and rent inflation remains low. Credit conditions for some borrowers are tighter than they have been.”

The RBA last cut the cash rate to its record low of 1.5 per cent in August 2016, after an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

According to a poll of 28 experts and economists by comparison website Finder.com.au, just 40 per cent now believe the next move will be up, compared with roughly 80 per cent for the past two years.

“This is the most dramatic shift I have seen in four years of running our cash rate survey,” Finder.com.au insights manager Graham Cooke said. “Economists are now swinging significantly in favour of a cut this year, but nobody can agree on exactly when this will happen.”

Despite the low official cash rate, borrowers have been stung with out-of-cycle rate hikes due to rising interest rates in overseas money markets, which fuel the lion’s share of Australian home lending.

Last week, ME Bank and ING both jacked up interest rates, following NAB’s lead the previous week. NAB had held off raising rates along with the rest of the big four in August and September last year.

The average owner-occupier mortgage rate has risen 14 basis points since September last year. The average variable rate now sits at 4.37 per cent, according to Canstar, with the lowest 3.54 per cent and the highest 5.59 per cent.

“If we see mortgage rates rising more broadly, we might see the RBA become more willing to consider a rate cut in an effort to offset higher funding costs and support heavily indebted household balance sheets,” CoreLogic head of research Tim Lawless said.

“The hold decision was widely anticipated, considering a subtle uplift in CPI (Consumer Price Index) and steady labour market conditions, however financial markets are increasingly leaning towards the next move from the RBA being a cut rather than a hike.”

Canstar group executive of financial services Steve Mickenbecker said with bank having already toughened up on credit, “any tougher and we are well and truly in credit crunch territory”.

“If this comes as the economy and foreign investment in Australian property slows, the property price falls will cease to be a correction and will become a rout,” he said. “That would mean recession.”

frank.chung@news.com.au





Source link Finance News Australia

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