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Cash rate decision announced

The Reserve Bank has revealed its cash rate verdict for September, following its monthly board meeting.

The Reserve Bank of Australia (RBA) has held the official cash rate at 1 per cent, in line with market expectations.

Analysts are expecting the RBA to hold off on further cuts until the end of the year, as it monitors the impact of its back-to-back reductions in June and July.  

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Managing director of mortgage aggregator Finsure John Kolenda said that global instability, which has been heightened by US-China trade tensions, would not have been enough to prompt the RBA to lower the cash rate in September.  

“As yet, we haven’t seen any negative economic impacts hit the economy, and we should be cautious in reducing rates too much and too quickly because it could possibly dislocate the economy in other ways as evidenced by what has happened to the economy in Japan and Europe,” Mr Kolenda said.

“Consumers should feel comfortable that the RBA, the regulators and the federal government have plenty of options up their sleeve to help the domestic economy navigate its way through any possible challenges.”

Mr Kolenda added that while he expects the central bank to cut rates further in the coming months, the stimulatory effect of such reductions would be “minimal”.

“It is difficult to see consumers gaining confidence in spending when the global economic news is so negative,” he said.

“But positive consumer sentiment is what’s required to invigorate the economy. As the federal Treasurer Josh Frydenberg intimated, we also need to see a rise in business confidence and investment to stimulate the economy to help cushion any global headwinds.

“We are likely to see another rate cut over the coming quarter but also hopefully some positive economic news, which will help elevate confidence and consumer spending to enable us to ride out the storm.”

Moreover, CoreLogic’s research director, Tim Lawless, said that the RBA would have noted the recent pick-up in housing market conditions in its September board meeting, which he said would have further influenced their decision to keep rates on hold.

Mr Lawless said that the RBA’s cuts in June and July, as well as the Australian Prudential Regulation Authority’s (APRA) changes to its lending guidance, have contributed to a notable spike in market conditions, evidenced by the rise in national home values in August  the first increase since April 2017.     

“Clearly, housing market conditions are responding to lower interest rates as well as the recent loosening of loan serviceability rules from APRA and the positive influence of the stable federal election outcome,” he said.

Mr Lawless added that the recent improvement in housing market conditions could trigger a sharper than expected recovery, which may prompt policymakers to introduce a fresh wave of credit curbs to limit the build-up of debt.

However, despite risks associated with a “V-shaped” housing recovery, the RBA is expected to follow through with its strategy to cut rates further as it targets a lower unemployment rate.

AMP Capital chief economist Shane Oliver is expecting two additional cuts to the cash rate by the end of the year, which would take the cash rate to 0.5 per cent.

[Related: Negative interest rates ‘only a matter of time’]

Cash rate decision announced
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Charbel Kadib

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

Before joining the team in 2017, Charbel held roles 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.

 

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