Interest Rate Update
The Reserve Bank of Australia (RBA) has made its second cash rate announcement of the year.
The rate will remain on hold at 1.5% as it has since August 2016, despite the building consensus that a cut is impending.
CoreLogic head of research Tim Lawless said, “With the economy losing momentum, as well as inflation and wage growth remaining below expectations, there are plenty of reasons why the RBA might have considered a cut to the cash rate today.
“Concerns around slowing consumption as the wealth effect reverses, causing households to pull back on spending and revert to saving were likely also a central theme of the RBA’s board meeting deliberations.”
Recent data from CoreLogic has shown that the pace of value declining in dwellings has eased somewhat, but the geographic spread of struggling housing market conditions has only widened.
“There is a growing likelihood that the cash rate will move lower later this year,” Lawless concluded.
Canstar group executive of financial services Steve Mickenbecker concurred, saying that a lower cash rate “looks inevitable.”
He also spoke to how a rate decrease could impact the overall lending environment.
“The increased wholesale funding costs that drove home loan rates up for existing borrowers from September last year have since been reversed, with the bank bill swap rate falling again. Lenders are factoring in cuts, with 274 fixed rate cuts this calendar year,” Mickenbecker explained.
When the cash rate finally does move, Mickenbecker is eager to see how much the banks will pass on to their customers and if the cuts “will be enough to make a difference.”
“The most likely answers are not all of it, and there will be a long lag before any rate cuts work through the economy,” he said.
Market expectations suggest that a cut would come no earlier than August, which allows for the federal budget to be handed down later today and the federal elections to play out in May.
RBA’s monetary policy position will likely be further clarified with the Financial Stability Review released on 12 April, and the Statement on Monetary Policy released on 10 May.
According to Mickenbecker, “Chances are we will see some downward revisions to the RBA’s forecasts for economic growth and inflation which could set the scene for lower rates over the second half of the year.”