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First cash rate decision of 2020 revealed

by Hannah Dowling6 minute read

The Reserve Bank has announced its cash rate decision for the month of February, the first rate decision made for 2020.

The Reserve Bank of Australia (RBA) has held the official cash rate at 0.75 per cent.

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In the lead-up to the decision, many anticipated that the central bank would cut rates this month.

A poll run by The Adviser between 1 December 2019 and 4 February 2020 showed that 47.1 per cent of the 192 respondents expected the RBA to cut rates in February, while 26.2 per cent believed the rate would first drop in March instead.

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Analysts also had mixed expectations regarding the outcome of the February monetary policy meeting.

While many analysts last year expected the RBA to cut the cash rate following their first meeting for 2020, several altered their predictions in light of the latest inflation figures and growing uncertainty in the domestic and international economies.

The full impact of Australia’s unprecedented bushfire season over the summer on the domestic economy is still yet to be seen, in addition to the effect of the outbreak of the coronavirus in international markets, and both of these factors encouraged analysts to amend their predictions for when the RBA would make the next cash rate move.

However, they continue to anticipate that the RBA will make further cuts to the cash rate in the coming months, following on from reductions in June, July and October last year.

Loan Market executive chairman Sam White said brokers should still anticipate an increase in market activity, despite the cash rate remaining on hold.

“There’s been a shortage of listings in the market over the summer break, which is common,” said Mr White. 

“After a surge in activity in late spring, sellers held off from listing at the back end of 2019, but we are starting to see more listings come back on the market.

“In 2020, with the introduction of best interests duty and a surge of listings, I expect customers will seek out brokers even more, as we continue to strengthen the trust we’ve built in the marketplace.”

Mr White said the steady decision should encourage confidence in consumers and brokers alike.

“The RBA is keeping the powder dry; this decision means the people looking at the macro-financial factors are seeing positive signs in our economy,” he said.

John Kolenda, managing director of mortgage aggregator Finsure, also anticipated the RBA to hold the rate and said while the world awaits the full impact of the coronavirus on global economic conditions, the RBA’s movements will be effectively placed “in quarantine”.

“The RBA is aware that reducing rates now will have no impact, and it will hold off until the current challenges subside,” Mr Kolenda said.

Looking to the economy, CoreLogic head of research Tim Lawless said that while lower interest rates haven’t flowed through to a “material improvement” in the domestic economy, the housing market has been significantly impacted by rate cuts, with national housing values up 6.7 per cent since the first rate cut in June last year.

“Importantly, we may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9 per cent over the year to November, driven by a 10 per cent increase in owner-occupier commitments,” Mr Lawless said.

He therefore anticipates that the RBA will cut the official cash rate “later in 2020”.

“Further rate cuts could fuel home buyer demand, although we don’t expect future cuts to the cash rate to be passed on in full to mortgage rates,” he said.

AMP Capital chief economist Shane Oliver stated that as the economy has not yet delivered the RBA’s full employment and inflation objectives, a rate cut is to be expected.

Mr Oliver said the recent bushfires are “likely to knock growth in the short term”, and the China coronavirus poses “a new threat to global growth and tourist arrivals”, with both situations expected to incentivise the RBA to hold off on cutting rates until at least March.

[Related: Rate stability to keep property prices at bay: Domain]

First cash rate decision of 2020 revealed
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Hannah Dowling

Hannah Dowling

AUTHOR

Hannah Dowling is a journalist for The Adviser and Mortgage Business.

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