Mortgage rates rising, but no official cash rate change in store for May RBA meeting
The possibility of a change in the 1.50% official cash rate remains highly unlikely ahead of Tuesday’s May Reserve Bank board meeting, with the consensus pointing towards a fourth hold for 2018.
A lack of movement in key economic indicators together with a lower than expected increase in CPI for the March quarter, which at 1.9% remains short of the RBA’s desired 2-3% annual inflation target, would make a rate move highly unlikely next month, let alone for the rest of the year.
“I’ve not seen any signals that the economy is gathering strength at all. There are no major shifts going on in employment, inflation or any of the other key indicators that would suggest that we’re heading for a rate increase,” said Mozo Product Data Manager, Peter Marshall.
“The forecast remains rates on hold for quite a while, and I continue to believe that they won’t shift this year, perhaps not until mid-2019. The proviso being that the world economy continues on a similar trajectory and there are no international shocks, in which case we could be looking at a rate cut instead.”
The continuation of a record low official cash rate, at least in the “near-term”, was all but confirmed by Reserve Bank Governor Philip Lowe in the minutes of the RBA’s April 3 Monetary Policy Meeting, but he did give an indication that the next move was likely to be a rise.
“In current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down.”
“As progress in lowering unemployment and having inflation return to the midpoint of the target was expected to be only gradual, members also agreed that there was not a strong case for a near-term adjustment in monetary policy.”
Funding squeeze pushing mortgage rates higher
Despite the likelihood of a 19th straight hold in store for the official cash rate at Tuesday’s RBA meeting, Australian home owners have already started to feel the pinch of out of cycle variable home loan rate rises.
According to figures from the Mozo database 47% of Aussie borrowers have, in fact, experienced an out of cycle rate rise since the last RBA rate change in August 2016.
And with funding pressure mounting as a result of higher interest rates in the United States, Australian lenders are likely to further increase mortgage rates.
“There is definitely a bit of a funding cost squeeze going on for the banks and a couple of them have already shifted rates in response to that, so I fully expect that most lenders will have to follow,” said Marshall.
“Given that, I would strongly recommend that borrowers consider at least a partial fix of their home loan. It’s always possible that something could jolt the world economy and cause the RBA to slash rates, but I feel the more likely scenario at the moment is that someone who fixes with a good rate isn’t going to be disappointed.”
RELATED: Shock home loan rate rises hitting Aussie wallets hard
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