Cash rate kept on hold once more
The Reserve Bank of Australia (RBA) has decided to keep the cash rate unchanged at 2 per cent. At today’s meeting, RBA governor Glenn Stevens said the board judged there to be reasonable prospects for continued growth in the economy, with inflation close to target.
“Recent information suggests that the global economy is continuing to grow, though at a slightly lower pace than earlier expected,” Stevens says.
The last time the RBA cut the cash rate was in May 2015.
Bessie Hassan, consumer advocate at finder.com.au, says the RBA will be watching the Aussie dollar closely.
“Central banks often favour a depreciating currency to stimulate inflation and boost activity,” she says.
“With interest rates at record lows, fewer borrowers are opting for interest-only home loans as mortgage repayments become more affordable.”
Figures from the Australian Bureau of Statistics and the Australian Prudential Regulatory Authority (APRA) reveal the percentage market share of interest-only loans fell from 45.8 per cent in the June 2015 quarter to 37 per cent by December 2015.
“The value of new interest-only loans approved in Australia also dropped from $44 billion in the June quarter to $36 billion by December 2015 – the first time such a drop has been observed since the GFC,” Hassan says.
If the Australian dollar moves even higher, she adds, experts predict the Reserve Bank will feel obliged to step in.
Tim Lawless, CoreLogic RP Data head of research, also suspects there may be interest rate cuts later in the year.
“With some of the heat coming out of the housing market and inflation remaining low, the Reserve Bank has room to cut the cash rate later this year if they see a requirement to do so,” he says.
“If we do see a lower cash rate later this year, chances are we won’t see the full rate cut passed on to mortgage rates due to the higher funding costs facing Australian lenders.”
“Arguably, a cash rate cut wouldn’t have the same stimulatory effect on the housing market as what we saw from previous rate cuts in February and May last year.”
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