July 04, 2018

RBA makes July decision on cash rate

The RBA has made its decision on the cash rate, choosing to hold it at 1.5%.

It has now been at this rate for 22 meetings and experts are not forecasting a change any time soon.

Predictions coming in over the weekend and yesterday had forecast this decision, with AMP Capital’s chief economist, Dr Shane Oliver, saying there was “no strong case to move either way”.

Most people are not predicting a change to the rate until late-2019.

Explaining why this would be the case, Tim Lawless, CoreLogic head of research, said, “Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range.

“With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated. It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019.”

Despite the decision to hold, lenders have been increasing their interest rates.

Lawless added, “Focus is now moving to mortgage rates, where we are increasingly seeing upwards pressure from overseas funding costs. Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products.

“Larger banks, who are more reliant on domestic deposits to fund their home loans, have less exposure to higher funding costs. However it is likely margin pressures are becoming evident across the big end of town as well.

“Despite these early signs of some upwards pressure on mortgage rates, average variable rates remain almost 120 basis points below their decade average of 6.4%. Borrowers, particularly owner occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term.”

By: Rebecca Pike

This story first appeared on Australian Broker 3rd July 2018

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