Powered by MOMENTUM MEDIA
subscribe to our newsletter

RBA concedes it will ‘consider’ rate cut in June

Expectations of a cut to the official cash rate have been heightened after RBA governor Philip Lowe conceded that an adjustment may be “appropriate” to reverse subdued inflation trends and support employment growth.   

In his address to the Economic Society of Australia, governor of the Reserve Bank of Australia (RBA) Phillip Lowe revealed that the central bank’s board would “consider the case” for a cut to the official cash rate in June.

Mr Lowe’s address coincided with the releases of minutes from the RBA’s monetary policy board meeting in May, in which it held the official cash rate at 1.5 per cent.

However, with inflation and labour market indicators continuing to fall below target, Mr Lowe said that monetary policy “has a role to play” in reversing the subdued market conditions.

“At that meeting, we discussed a scenario in which there was no further improvement in the labour market and the unemployment rate remained around the 5 per cent mark,” he said.

Advertisement
Advertisement

“In this scenario, we judged that inflation was likely to remain low relative to the target and that a decrease in the cash rate would likely be appropriate.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target.”

He added: “Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

The shift in the RBA’s outlook confirms market expectations of a rate cut in June, with some analysts, including AMP chief economist Shane Oliver, stating that the RBA may well have dropped the cash rate in May had it not been for the domestic political environment – which has now been settled by the Coalition government’s electoral victory.

Mr Lowe’s remarks have also coincided with the Australian Prudential Regulation Authority’s (APRA) proposal to remove the 7 per cent interest rate floor for mortgage serviceability assessments and increase the interest rate buffer from 2 per cent to 2.5 per cent.

PROMOTED CONTENT


APRA chair Wayne Byres noted that its proposal to loosen its regulatory framework reflected changes in the operating environment, particularly stating that it expects interest rates to “remain historically low for some time”.

“APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk,” he said. “Although many of those risk factors remain – high house prices, low interest rates, high household debt, and subdued income growth – two more recent developments have led us to review the appropriateness of the interest rate floor.”

He added: “With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so. 

“In addition, the introduction of differential pricing in recent years – with a substantial gap emerging between interest rates for owner-occupiers with principal-and-interest loans on the one hand and investors with interest-only loans on the other – has meant that the merits of a single floor rate across all products have been substantially reduced.”

[Related: Below target inflation not enough to sway RBA]

 

RBA concedes it will ‘consider’ rate cut in June
Philip Lowe
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! Tickets are on sale now. Work smarter, not harder, this year.

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

New lending commitments for owner-occupiers fell by 2.5 per cent in June, the largest monthly drop-off in around a year. ...

Non-bank lender TechLend has gained $50 million in funding from a Silicon Valley venture fund, with plans to turbocharge the growth of its b...

The RBA has announced its August rate decision as ongoing lockdowns dampen speculation about imminent rate rises. ...

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!

How long do you think it should take to discharge a mortgage?

Website Notifications

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