RBA give mortgage holders a Christmas present

The Reserve Bank are sitting tight on interest rates for December – giving mortgage holders an early Christmas present.

The ‘hold’ decision follows Tuesday’s monthly RBA board meeting, the final one of 2017, as Australia’s central bank parked official cash rates at its ultra-low 1.5% level for the 16 month running.

All 33 economists polled by finder.com.au forecasted the official cash rate would be held as consumers stare into the final days of 2017.

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“The RBA will be happy to sit tight as we approach Christmas, and monitor incoming data. With housing starting to roll over, retailers facing a tough holiday period, and a stubbornly high Australian dollar, we remain confident that the next move will be a cut, but this will take time to play out,” said Jordan Eliseo, Chief Economist at ABC Bullion.

There is widespread agreement among economists that when the cash rate next moves, it will be upwards.

However, opinions are divided about when this will happen, with a significant number [of economists] predicting a long wait until the rate is adjusted, possibly into 2019.

Graham Cooke, Insights Manager at finder.com.au, says it’s probable there won’t be movement until the latter half of 2018. “Even if it does nudge next year, it’s likely to be in the third or fourth quarter,” he says. One third of the panellists aren’t expecting any cash rate movement until 2019.

Read the full statement from RBA governor Philip Lowe here:

Conditions in the global economy have improved over 2017. Labour markets have tightened and further above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy continues to be supported by increased spending on infrastructure and property construction, although financial conditions have tightened somewhat as the authorities address the medium-term risks from high debt levels. Australia’s terms of trade are expected to decline in the period ahead but remain at relatively high levels.

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Wage growth remains low in most countries, as does core inflation. In a number of economies there has been some withdrawal of monetary stimulus, although financial conditions remain quite expansionary. Equity markets have been strong, credit spreads have narrowed over the course of the year and volatility in financial markets is low. Long-term bond yields remain low, notwithstanding the improvement in the global economy.

Recent data suggest that the Australian economy grew at around its trend rate over the year to the September quarter. The central forecast is for GDP growth to average around 3 per cent over the next few years. Business conditions are positive and capacity utilisation has increased. The outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time. Increased public infrastructure investment is also supporting the economy. One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high.

Employment growth has been strong over 2017 and the unemployment rate has declined. Employment has been rising in all states and has been accompanied by a rise in labour force participation. The various forward-looking indicators continue to point to solid growth in employment over the period ahead. There are reports that some employers are finding it more difficult to hire workers with the necessary skills. However, wage growth remains low. This is likely to continue for a while yet, although the stronger conditions in the labour market should see some lift in wage growth over time.

Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. The Bank’s central forecast remains for inflation to pick up gradually as the economy strengthens.

The Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Growth in housing debt has been outpacing the slow growth in household income for some time. To address the medium-term risks associated with high and rising household indebtedness, APRA has introduced a number of supervisory measures. Credit standards have been tightened in a way that has reduced the risk profile of borrowers.

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Nationwide measures of housing prices are little changed over the past six months, with conditions having eased in Sydney. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities.

The low level of interest rates is continuing to support the Australian economy. 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.