RBA holds cash rate at record low

The Reserve Bank of Australia has today announced the official cash rate for November, following its monthly board meeting.

The RBA has again chosen to keep the cash rate at 1.5 per cent, a move predicted by most industry experts.

None of the surveyed experts on the finder.com.au panel predicted a rate change, despite some economic indicators showing signs of a slowdown.

Chief economist at ABC Bullion Jordan Eliseo correctly predicted that these slowdowns would not be enough to influence the RBA to impose a rate cut.

Mr Eliseo said: “Despite concerns about a slowdown in retail sales growth over the last few months, the RBA still appears confident in the outlook for the Australian economy, though [its] rhetoric around tightening policy has changed appropriately.” 

While industry experts agreed on the outcome of the RBA’s announcement, there was a difference of opinion regarding the future movement of the official cash rate.

Some forecasters, like Mr Eliseo, predicted a rate reduction in the near future as a result of downturns in some economic indicators.

“We still see the next move as down, but it will not come until Q1 2018 at the earliest,” Mr Eliseo said.

Mortgage Choice’s head of corporate affairs, Jessica Darnbrough, suggested that improved economic conditions could lead to a rate hike. 

“The domestic and international economies are starting to show signs of improvement, which could encourage the Reserve Bank to lift the cash rate at some point over the coming months,” Ms Darnbrough said. 

However, an online survey from ME showed that borrowers could face challenges if and when the RBA raises rates.

When 2,000 mortgage holders were asked how they would manage a rate rise of 1 per cent, 56 per cent said that it would have an “adverse impact”, while 43 per cent indicated that they would spend less and 27 per cent of investors responded that they would sell their investment property.

The survey also found that nearly 62 per cent of borrowers were expecting their lender to increase interest rates on their home loan in the next 12 months.

Echoing this expectation, the head of research at CoreLogic, Tim Lawless, said: “Considering the household savings ratio is at a five-year low of 4.6 per cent, and an increasing amount of debt is concentrated in residential mortgages, household balance sheets will be tested when interest rates eventually start to rise.

It is highly likely that a lift in the cash rate would further dampen household consumption, potentially leading to slower economic growth and fewer new employment opportunities… if interest rates were to rise, it would likely suck demand out of the economy, with mortgagees spending a higher proportion of their income to service mortgage debt.”

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Charbel Kadib

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