Cash rate decision announced

The Reserve Bank of Australia (RBA) has announced that it has held the official cash rate at 0.75 per cent in its first monetary policy board meeting for 2020.

In the lead-up to the decision, many analysts had predicted that the RBA would cut rates. However, some altered their predictions following the release of the latest inflation figures and growing uncertainty in the domestic and international economies.

The full economic impact of Australia’s unprecedented bushfire season is also yet to be seen, in addition to the effect of the outbreak of the coronavirus on international markets, and both of these factors encouraged analysts to amend their predictions for when the RBA would make the next cash rate move.

Despite the hold, analysts continue to anticipate that the RBA will make further cuts to the cash rate in the coming months, following on from reductions in June, July and October last year. 

CoreLogic head of research Tim Lawless said that while lower interest rates haven’t resulted in a “material improvement” in the domestic economy, the housing market has been significantly impacted by rate cuts, with national housing values up 6.7 per cent since the first rate cut in June last year.

“Importantly, we may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9 per cent over the year to November, driven by a 10 per cent increase in owner-occupier commitments,” Mr Lawless said.

Mr Lawless anticipates that the RBA will cut the official cash rate “later in 2020”.

“Further rate cuts could fuel home buyer demand, although we don’t expect future cuts to the cash rate to be passed on in full to mortgage rates,” he added.

AMP Capital chief economist Shane Oliver noted that while he would not be surprised by a February rate cut, he anticipated the RBA would hold off at least until March.

“With the economy a long way from the RBA’s full employment and inflation objectives, the bushfires likely to knock growth in the short term and the China coronavirus posing a new threat to global growth and tourist arrivals, the RBA should be cutting rates at its February meeting,” he said.

“But against this, it may decide to wait a bit longer, given the decline in headline unemployment reported for December. Given the latter, we lean towards the RBA cutting in March.”

John Kolenda, managing director of mortgage aggregator Finsure, anticipated the RBA to hold the rate and stated that while the world awaits the full impact of the coronavirus on global economic conditions, the RBA’s movements will be effectively placed “in quarantine”.

“The RBA is aware that reducing rates now will have no impact, and it will hold off until the current challenges subside,” Mr Kolenda said.

The Finsure head added that mortgagors can “be comforted” by the fact that interest rates are not expected to rise for the foreseeable future and will “most likely keep coming down”.

Additionally, he urged mortgage-holders to be vigilant about their home loans and not “set and forget”.

“Lenders are still battling for... business, and their retention teams know borrowers are willing to shop around in this competitive lending environment,” Mr Kolenda said, adding that borrowers should contact a mortgage broker to ensure they get “the best terms possible and, most importantly, save money”.

[Related: RBA granted additional breathing space as inflation ticks up]