No April surprise in store as 2018 RBA rate change appears increasingly unlikely
Article by Tom Watson
The Reserve Bank board may be sitting down for its third meeting of 2018 on Tuesday just two days after April Fools, but there’s likely to be little in the way of surprises when it comes to a change in the official cash rate.
For the short term, the expert consensus points toward the 1.50% cash rate remaining the same for a record 20th straight month at Tuesday's meeting, with the ASX’s ‘RBA Rate Indicator’ currently showing a 100% chance of a hold.
This view is shared by Mozo’s Product Data Manager Peter Marshall, who stated that the RBA may, in fact, be forced to keep the official cash rate on hold for the rest of 2018.
“While an interest rate rise still seems to be the most likely move in the future, I can’t see any reason why the RBA would do it this year,” he said.
“Actual economic performance has consistently undershot the RBA’s stated targets for a long time, so while the RBA has previously flagged its intention to increase rates, unless something changes to mean those targets are achieved there’s not really any scope for the cash rate to be increased.”
Is the possibility of a cut increasing?
For the RBA to entertain the possibility of a rate rise in 2018, a number of key economic indicators including wage growth and inflation would need to increase on their current levels.
"Notwithstanding the improving labour market, wage growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time," said Reserve Bank Governor, Philip Lowe, after the March RBA meeting.
"The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual."
And with increasing volatility at the global level, especially in the wake of a series of tariffs announced earlier in the month by US President Donald Trump, Marshall noted that unsettled conditions could potentially lead to a weaker performance in the Australian economy - the kind of environment where a rate cut could become the more likely outcome.
“Though a rate increase is the more likely change at present, depending on how global factors pan out in another six months or so we could be talking about a rate cut,” he said.
“The RBA will be thinking really hard before entertaining the possibility of a rate cut though, because it really does send a signal to the world that we think our economy is in a worst spot and it needs stimulation. Lower rates could lead to a lower Aussie dollar though, which could give business a boost.”
In the meantime, with the official cash rate likely to stay steady, the outlook for borrowers could continue to remain positive - especially given the continued competition between home loan lenders in March which has seen a number of variable rates and even some fixed rate offers, sharpen.
Think you might be able to take advantage of a low rate home loan deal? The good news is the Mozo Experts have just released their 2018 Mozo Experts Choice Home Loan Award winners, or if you’d rather compare a range of offers for yourself, head over to our home loan comparison tables.