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RBA makes cash rate decision - Oct 2017

by Sasha Karen6 minute read
RBA

The Reserve Bank of Australia has announced the official cash rate for October following its monthly board meeting.

Consistent with current industry predictions, the RBA has decided to keep the official cash rate at the record low of 1.50 per cent.

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The last time the cash rate moved was in August 2016, when it ticked down by 25 basis points.

All 31 panelists surveyed about the October cash rate on finder.com.au predicted that the rate would hold, while HashChing’s broker survey revealed that 92.25 per cent of brokers also believed there would be no movement.

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Mandeep Sodhi, CEO of online mortgage marketplace HashChing, told The Adviser that he did not believe the Reserve Bank would be changing the rates before Christmas, as that would have the potential to impact spending at a pivotal time of year.

Mortgage Choice CEO John Flavell said that the decision to hold rates where they are stems from the consideration of domestic and global economic factors, which make it “easy to see why” the RBA put the cash rate on hold.

“On the domestic front, the economy is tracking well, with positive business conditions, improved consumer confidence and a relatively low unemployment rate,” Mr Flavell said.

“At a global level, things are also looking up. In the US, the Federal Reserve left the official cash rate on hold, citing a strengthening labour market and moderate growth in economic activity as the basis for their decision.”

Speaking to finder.com.au, Jessica Darnbrough of Mortgage Choice added: “It is clear the [RBA] board believes that the current plan of attack is consistent with achieving the inflation target over time.”

Michael Witts of ING Direct agreed, saying: “The economy is heading in the right direction and there is no need for RBA action at this stage.”

The Housing Industry Association’s Shane Garrett also backed this thinking.

Andrew Wilson of Domain said that the decision to hold the cash rate was indicative of a longer-term stable view, which is reinforced by a slightly falling Sydney house price growth, job levels increasing and an improving federal budget position.

However, Mr Wilson added that there are still issues that show Australians are “not out of the woods yet”. “Stagnant incomes growth, subdued inflation and over-inflated currency remain the jokers in the pack,” he said.

CoreLogic’s head of research, Tim Lawless, also suggested that a cooling housing market could raise the cash rate in the future, looking to how it has influenced property prices.

“CoreLogic’s hedonic home value index reported the first month-on-month decline in Sydney dwelling values since March last year when the previous round of APRA regulatory changes were flowing through to credit policies and reducing investor participation,” Mr Lawless said.

“That previous slowdown in housing market growth reversed when the cash rate was cut in May and August last year and investment credit growth accelerated.

“No such lifeline is likely to eventuate this time around, and in all likelihood, we will continue to see the trend rate of growth easing across the Sydney and Melbourne housing markets.”

Despite the domestic economy improving, Mr Lawless said that wage growth and inflation are “subdued”, and with the cooling housing market, these factors are likely to ease pressure on the RBA to push the cash rate higher.

John Caelli of ME Bank said that he “clearly” saw the next move, whenever it might be, to be an increase.

Nerida Conisbee of REA Group agreed, but added that she did not believe there would be a rate rise in the near future.

“The economy is too weak to increase rates and the housing market is too sensitive to cuts to decrease them,” Ms Conisbee said.

Economist Saul Eslake stated the RBA appears to want to keep rates at their current level and is not “in any hurry to start raising them”.

“[The] RBA will have drawn some comfort from data releases since the last meeting, but will see them as supporting its current set of forecasts rather than warranting upward revisions to them,” Mr Eslake said.

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RBA makes cash rate decision - Oct 2017
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