RBA hikes cash rate - 2018

The RBA has decided to hike the official interest rate to 1.75 per cent, up from its long-held record low level of 1.5 per cent.

The last time the cash rate moved was in August 2016, when it ticked down. However, the cash rate has not been increased since November 2010, more than seven years ago, when it climbed to 4.75 per cent.

Prior to the announcement, only one of the surveyed experts on the finder.com.au panel correctly predicted a rate rise.

Associate professor at Monash University Mark Crosby was the only panellist to correctly predict the RBA’s verdict, claiming that the case for a rate rise was “very strong”.

However, while 97 per cent predicted the cash rate to remain unchanged, the vast majority (83 per cent) rightly predicted that the next cash rate verdict would be an increase.

Economist at Corinna Economic Advisory Saul Eslake said: “[The] RBA has repeatedly made it clear that it feels under no pressure to follow other central banks in hiking rates.”

Concerningly, more than half of the panellists (56 per cent) noted that a rate hike could have an adverse effect on borrowers, causing some mortgage holders to default on their loans.

Thirty-nine per cent of panellists claimed that two cash rate increases (totalling 50 basis points) could be enough to trigger mortgage defaults for borrowers at the “risky” end of the spectrum.

However, managing director of 1300 Home Loan, John Kolenda, said he believes that global market conditions could prompt lenders to increase rates, regardless of the RBA’s decision.

“While the RBA looks like keeping its cash rate on hold, there are some lenders facing increases in the cost of their wholesale funding which they blame on the impact of US economic policies,” Mr Kolenda said.

“They have already lifted rates for business loans and have warned they may have to also pass on these increases to home loans.”

Despite also predicting a rate hold, managing director of Market Economics Stephen Koukoulas urged the central bank to drop the cash rate.

“The RBA is unable to get away from its obsession with non-existent financial instability. It should be cutting rates,” Mr Koukoulas said.