BREAKING: Reserve Bank hands down rate verdict

The Reserve Bank of Australia has left interest rates on hold for a record-breaking 26 months in a row.

The RBA last moved rates back in August 2016, cutting them to the current record-low 1.5 per cent.

The decision was of no surprise to market economists, academics and experts who aren’t expecting any move in the cash rate until early 2020.

However, experts also agree that the RBA’s stance won’t protect mortgage-holders from lender-initiated rate hikes.

Despite Royal Commission scrutiny, banks are choosing to hike rates

Commenting on the verdict, Mortgage Choice head of corporate affairs, Jacqueline Dearle said the decision was likely influenced by a number of factors. She cited low inflation in Australia, an “acceptable” unemployment rate and sluggish wage growth.

“On an international level, Trump’s trade tariffs on Chinese imports may create a drag on global growth, which may impact on the Australian economy and jobs.”

Further, Aussie property-owners could still be at risk of out-of-cycle rate hikes from their lenders as tightened wholesale borrowing costs take effect.

“Combined with tightened lending standards and a softening housing market, this will also help anchor the rate for now,” Dearle said.

Laing+Simmons’ managing director Leanne Pilkington agreed that there was little impetus for the RBA to move rates.

Nevertheless, Aussie consumers are “right to be sceptical” about lenders’ decisions to hike their own interest rates.

All but one major lender have recently hiked their interest rates out-of-cycle.

Pilkington said, “Most of the majors and a raft of smaller lenders have already taken matters into their own hands and adjusted their rates despite the RBA’s hold position. Consumers are right to be sceptical about the attempts to justify these adjustments, especially against the backdrop of easing house prices.”

Independent economist Saul Eslake commented that the RBA doesn’t seem concerned by lenders’ out-of-cycle rate hikes, instead concerned with under-employment and inflation.

We could be in a holding pattern until 2020

It could be a while until industry pundits see any interest rate excitement, with the RBA likely to keep the cash rate on hold until 2020, analysts at property research group CoreLogic also predicted.

“Despite the housing downturn gathering some pace in September… we don’t expect the RBA to throw a lifeline to the housing market in the form of lower interest rates,” Corelogic head of research, Tim Lawless said.

“Considering dwelling values comprise around 55 per cent of household wealth and about 70 per cent of household debt, the RBA has a keen interest in the housing markets performance.”

“Cutting the cash rate would likely provide further support to economic conditions, but could also risk refuelling growth in housing prices, as was the case in 2016 when the cash rate was cut by 50 basis points between May and August,” he added.

AMP Capital chief economist Shane Oliver was reticent to rule out a rate cut.

He said falls in property values would lead to depressed consumer spending.

“It’s consistent with our view that the RBA will leave rates on hold out to late 2020 at least.”

“Home price weakness is at levels where the RBA started cutting rates in 2008 and 2011, so we still can’t rule out the next move in rates being a cut rather than a hike.”

Statement by Philip Lowe, Governor: Monetary policy decision

“At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.”

“The global economic expansion is continuing. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. Growth in China has slowed a little, with the authorities easing policy while continuing to pay close attention to the risks in the financial sector. Globally, inflation remains low, although it has increased due to both higher oil prices and some lift in wages growth. A further pick-up in inflation is expected given the tight labour markets, and in the United States, the sizeable fiscal stimulus. One ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

“Financial conditions in the advanced economies remain expansionary, although they are gradually becoming less so in some countries. Yields on government bonds have moved a little higher, but credit spreads generally remain low. There has been a broad-based appreciation of the US dollar this year. In Australia, money-market interest rates are higher than they were at the start of the year, although they have declined since the end of June. In response, some lenders have increased their standard variable mortgage rates by small amounts, while at the same time reducing mortgage rates for some new loans.

“The latest national accounts confirmed that the Australian economy grew strongly over the past year, with GDP increasing by 3.4 per cent. The Bank’s central forecast remains for growth to average a bit above 3 per cent in 2018 and 2019. Business conditions are positive and non-mining business investment is expected to increase. Higher levels of public infrastructure investment are also supporting the economy, as is growth in resource exports. One continuing source of uncertainty is the outlook for household consumption. Growth in household income remains low and debt levels are high. The drought has led to difficult conditions in parts of the farm sector.

“Australia’s terms of trade have increased over the past couple of years due to rises in some commodity prices. While the terms of trade are expected to decline over time, they are likely to stay at a relatively high level. The Australian dollar remains within the range that it has been in over the past two years on a trade-weighted basis, but it has depreciated against the US dollar along with most other currencies.

“The outlook for the labour market remains positive. The unemployment rate is trending lower and, at 5.3 per cent, is the lowest in almost six years. The vacancy rate is high and there are reports of skills shortages in some areas. A further gradual decline in the unemployment rate is expected over the next couple of years to around 5 per cent. Wages growth remains low, although it has picked up a little. The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process.

“Inflation is around 2 per cent. The central forecast is for inflation to be higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some administered prices in the September quarter are expected to result in inflation in 2018 being a little lower than otherwise.

“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low. Growth in credit extended to owner-occupiers remains robust, but demand by investors has slowed noticeably as the dynamics of the housing market have changed. Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality.

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”