September RBA Decision: Interest Rate Held At 1.50% - Addisons Advisory Group

September RBA Decision: Interest Rate Held At 1.50%

The Reserve Bank has announced that it will keep official interest rates on hold at 1.5 per cent for a record 23rd consecutive meeting.

It has now been more than two years since the RBA last moved the official cash rate – the market interest rate on overnight funds – with some market analysts predicting that interest rates will stay on hold throughout 2018 and 2019. RBA governor Philip Lowe said the low level of interest rates was “continuing to support the Australian economy”.

The outlook for the labour market remained positive, despite low wage growth, according to the RBA. “The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process,” Mr Lowe said.

Softening home values in Sydney and Melbourne coupled with tighter lending standards also played into the RBA’s decision. “Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Housing credit growth has declined to an annual rate of 5½ per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed,” he said. “Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets.”

CoreLogic head of research Tim Lawless said rising mortgage rates were a key factor behind the RBA’s decision to keep the official cash rate steady. Westpacs decision to move out of cycle – hiking variable mortgage rates last week, despite the RBA’s decision to hold official cash rates steady – attracted significant backlash. Yet the rest of the big four lenders are still expected to follow suit.

“There are plenty of factors keeping interest rates on hold, but top of mind is the fact that mortgage rates are already edging higher as lenders look to balance their profit margins against higher funding costs and a smaller deposit base,” Mr Lawless said. Mr Lawless said the RBA might even decide to lower the official cash rate in coming months, in an attempt to counteract rate hikes by the big banks. “With the first of the big four banks announcing an out-of-cycle rate hike, the prospects for a higher cash rate have likely been pushed back even further; we could even see debate for a lower cash rate becoming more prominent,” he said.

“Financial markets are betting the cash rate will stay on hold until at least January 2020.”

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