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RBA announces cash rate decision - Apr 2018

by Reporter5 minute read

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

The board has decided to hold the cash rate at its record low of 1.50 per cent, in a move predicted by most industry representatives.

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Of the 32 surveyed respondents on the finder.com.au panel, 31 (97 per cent) correctly predicted the cash rate to remain unchanged. 

The central bank has now kept the cash rate on hold for a record-breaking 18 consecutive months. RateCity’s money editor, Sally Tindall, said that she expects the record will continue to be broken.

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“The record might be set, but the end isn’t near,” Ms Tindall said. “The Australian economy is stuck in neutral and Governor Philip Lowe’s hands are tied.”

Indeed, economist at Corinna Economic Advisory Saul Eslake predicted a hold verdict in finder’s survey, noting that “nothing has materially changed since the RBA last stated that current monetary policy settings were (in its opinion) appropriate”.

Mr Eslake said: “There’s been no new data on price or wage inflation, and the most recent labour force data suggests that the margin of spare capacity in the labour market remains unchanged, despite ongoing strong employment growth (because most of the new jobs are going to new entrants to the labour force).

“[The] RBA has repeatedly made it clear that it feels under no pressure to follow other central banks in hiking rates.”

However, the managing director of 1300HomeLoan, John Kolenda, said he believes that global market conditions could prompt lenders to increase rates regardless of the RBA’s decision.

“While the RBA looks like keeping its cash rate on hold, there are some lenders facing increases in the cost of their wholesale funding which they blame on the impact of US economic policies,” Mr Kolenda said.

“They have already lifted rates for business loans and have warned they may have to also pass on these increases to home loans.”

Associate professor at Monash University Mark Crosby was the only panellist in the finder survey to predict a rate move, claiming that the case for a rate rise was “very strong”.

Conversely, managing director of Market Economics Stephen Koukoulas urged the RBA to drop the cash rate.

“The RBA is unable to get away from its obsession with non-existent financial instability. It should be cutting rates,” Mr Koukoulas said.

In all, 83 per cent of surveyed panellists said that they expected the next rate move to be up. However, a majority (56 per cent) noted that rate hikes could have an adverse effect on borrowers, causing some mortgage holders to default on their loans.

Thirty-nine per cent of panellists claimed that two cash rate increases could be enough to trigger mortgage defaults for borrowers at the “risky” end of the spectrum, while a further 17 per cent said that just one rate increase could put borrowers in a precarious position.

[Related: RBA highlights competition in mortgage market]

RBA announces cash rate decision - Apr 2018
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