First RBA meet for 2018 keeps in­ter­est rates on hold

The Re­serve Bank of Aus­tralia had their first mone­tary pol­icy meet­ing for the year to­day and de­cided to keep in­ter­est rates on hold, with the of­fi­cial cash rate re­main­ing at 1.5 per cent.

Central Queensland News - - REAL ESTATE | INDUSTRY NEWS -

DE­SPITE some pre­dic­tions last year that rates would fi­nally rise in 2018, the de­ci­sion to keep them un­touched for now prob­a­bly doesn’t sur­prise many peo­ple.

RateCity money ed­i­tor Sally Tin­dall said there would need to be sub­stan­tial move­ment in in­fla­tion num­bers – cur­rently at just 1.9 per cent – be­fore the RBA could jus­tify hik­ing rates: “We know the direc­tion for in­ter­est rates is up, but un­til in­fla­tion gets over the cov­eted 2 per cent mark, it’s un­likely the RBA will hike rates,” she said.

“Lack of wages growth is another cul­prit. Without sub­stan­tive in­creases in pay it is un­likely the RBA will hike rates, par­tic­u­larly with house­hold debt at a record high.”

Through Jan­u­ary and Fe­bru­ary the RBA Rate In­di­ca­tor – which tracks the ASX 30 Day In­ter­bank Cash Rate Fu­tures – pre­dicted in­ter­est rates to re­main stag­nant, while as of yes­ter­day it recorded the Fe­bru­ary 2018 con­tract trad­ing at 98.505, stat­ing that this in­di­cated a 0% ex­pec­ta­tion of an in­ter­est rate in­crease to 1.75 per cent at the next RBA Board meet­ing.

The last move on rates was in Au­gust 2016, when there was a 25 ba­sis point cut to 1.5 per cent.

Since then, debt-bur­dened home own­ers have en­joyed Aus­tralia’s long­est run of record low in­ter­est rates.

The RBA last lifted the of­fi­cial cash rate seven years ago, mean­ing that there is now a size­able num­ber of first-home buy­ers who have never ex­pe­ri­enced a rate hike.

While other coun­tries such as the US con­tin­ued to raise in­ter­est rates last year, we still faced a cli­mate of un­happy con­sumers strug­gling with low wages growth, ris­ing en­ergy process and high debt lev­els – house­hold debt has now climbed to a record high of 199.7 per cent.

The ris­ing US econ­omy could have a big im­pact

Many economists, such as REA Group Chief Econ­o­mist, Nerida Con­is­bee, be­lieve a rate hike is on the cards in the sec­ond half of this year, with jobs and wage growth get­ting bet­ter (un­em­ploy­ment rose from 5.4 per cent to 5.5 per cent in the last month but em­ploy­ment growth was the strong­est it has ever been over a cal­en­dar year) and busi­nesses de­vel­op­ing greater con­fi­dence. Hav­ing a ma­jor im­pact is the rapidly ris­ing US econ­omy, she said.

“The US is our sec­ond largest trad­ing part­ner, af­ter China, and is also the largest econ­omy in the world; as such, what hap­pens there de­ter­mines global growth,” she said.

In­creased de­mand for Aus­tralian ex­ports would mean more jobs and bet­ter wages.

“Bet­ter growth in the Aus­tralian econ­omy means that the RBA is more likely to raise rates sooner,” she added.

Home loans will be more ex­pen­sive and trick­ier to se­cure

There was a big jump in buyer de­mand on fol­low­ing the last two rate cuts, ac­cord­ing to Con­is­bee.

But it’s not all good news for home own­ers as the big banks are still likely to in­crease their own home loan rates, she added.

“Banks are al­ready in­creas­ing loan rates. Part of this is be­cause their costs of whole­sale fund­ing are go­ing up but also be­cause there is a grow­ing ex­pec­ta­tion that rates will rise later in the year.

“Ba­si­cally Aus­tralians bor­row more than they save and this means that banks have to bor­row money from over­seas. With US rates in par­tic­u­lar ris­ing quite rapidly, this will be partly passed on to mort­gage hold­ers even if the RBA doesn’t in­crease rates,” she said.

“In ad­di­tion to this, there con­tin­ues to be a push by reg­u­la­tors for banks to lend less and an up­com­ing Bank­ing Royal Com­mis­sion which will add to their costs of do­ing busi­ness – this is likely to be passed on to cus­tomers,” she said.

Con­si­bee ad­vised home own­ers and in­vestors to reg­u­larly re­view your mort­gage, as a buf­fer for the time rates jump up: “If you find a bet­ter rate, it may be worth­while re­fi­nanc­ing. While rates are low, it is def­i­nitely worth­while pay­ing off more if you can. That way, ideally, your re­pay­ments will not be much dif­fer­ent when rates are higher,” she said

A sil­ver lin­ing is that first home buy­ers and ba­sic home loan pack­ages would be less af­fected by a rise in home loan rates, as first time buy­ers were gen­er­ally per­ceived as safe bor­row­ers and tended to have a de­cent de­posit.

“It is how­ever pos­si­ble that this will change over the year. If you are look­ing to get a loan, the more in­for­ma­tion you have on your in­come and sav­ing his­tory, the bet­ter. This will make a loan eas­ier to get and en­sure that you get the best rate pos­si­ble,” she said.

Claire Knox

We know the direc­tion for in­ter­est rates is up, but un­til in­fla­tion gets over the cov­eted 2 per cent mark, it’s un­likely the RBA will hike rates


New York Stock Ex­change in Fe­bru­ary 2018.

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