Powered by MOMENTUM MEDIA
subscribe to our newsletter

‘Imminent’ RBA cut to ‘validate’ low-rate environment

The recent wave of out-of-cycle mortgage rate reductions is expected to be entrenched by a cut to the official cash rate, which some analysts predict could come as early as next month.

Over the past few weeks, several lenders, including the major banks, have announced cuts to their fixed rate home loans of up to 40 basis points.

The reductions have come in response to easing funding cost pressures, which prompted out-of-cycle variable mortgage rate hikes throughout 2018 and the early part of 2019.

Meanwhile, the Reserve Bank of Australia (RBA) has held the official cash rate at 1.5 per cent. Some analysts, however, including managing director of Market Economics Stephen Koukoulas, expect the central bank to pull the rate lever sooner rather than later.

“We’re going through a period where official interest rates are probably going to go to 1 per cent, if not lower, and off the back of that, we’re going to see fixed rates, variable mortgage rates [drop] over the [following] six months,” he told Mortgage Business.

Advertisement
Advertisement

When asked when he expects the RBA to cut rates, Mr Koukoulas said a cash rate cut in May is likely in light of flat inflation growth, with the latest consumer price index (CPI) from the ABS reporting no movement (0.0 per cent) in the March quarter of 2019.

“One of [the RBA’s focuses] is the inflation rate and the fact that it’s been below the bottom of their target for, I think, three years now, means that the risk of over-stimulating the economy is just not there,” he said.

Mr Koukoulas sought to quash concerns over a second boom in the housing market if the official cash rate was to be cut.  

“We know housing is markedly weaker,” he continued. “House prices are still soft in Sydney, Melbourne and most of the country, so the idea that they’d rekindle the housing boom or see inflation go to the top end of the target range, I don’t think is a concern for them.”

Mr Koukoulas’ sentiment was echoed by chief economist at AMP Capital Shane Oliver, who, after assessing the latest CPI data, said that a rate cut from the RBA would be “imminent”, revising his initial forecast of reductions in the back end of 2019.

PROMOTED CONTENT


“We have been looking for two rate cuts this year since last December and had thought that the RBA would wait till after the election before starting to move,” Mr Oliver said.

“However, with underlying inflation coming in much weaker than expected, our base case is now that the first cut will come next month, with the RBA likely to conclude that it’s too risky to wait until unemployment starts to trend up.”

The RBA’s next monetary policy board meeting will be held on Tuesday, 7 May.

[Related: Major bank drops home loan rates]

‘Imminent’ RBA cut to ‘validate’ low-rate environment
RBA
mortgagebusiness

If you’re feeling overworked and overwhelmed in this fast-paced mortgage market, it’s time to make some changes, and the Business Accelerator Program can help! Work smarter, not harder, in 2022 and beyond, visit the website here to secure your ticket.

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

The big four bank has admitted to cutting off services to around 40,000 customers in the last two and a half years. ...

The latest index by the non-bank has suggested that home loans are at their most unaffordable for the first time in five years.  ...

The government has established a taskforce to look into bank branch closures in regional communities. ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think APRA's bank buffer changes will see more borrowers use non-banks?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.