No cut: Interest rates on hold following February RBA meeting

The Reserve Bank of Australia (RBA) board has left interest rates on hold at 0.75% following its first meeting of the year in this this afternoon. 

Despite plenty of speculation at the end of 2019 and earlier this year that the RBA’s hand would be forced in regards to a February rate cut, that proved not to be the case. 

"Lower interest rates have assisted with the process of household balance sheet adjustment. They have also boosted asset prices, which in time should lead to increased spending, including on residential construction," said Reserve Bank Governor, Philip Lowe. 

"Progress is expected towards the inflation target and towards full employment, but that progress is expected to remain gradual."

According to Mozo Banking Expert, Peter Marshall, the latest round of jobs data, which showed a slight dip in unemployment levels from 5.2% to 5.1%, as well as a stronger than expected CPI figure, may have tipped the scales in favour of stability.

“While late last year the option of cutting in February seemed very likely, there are a couple of key economic indicators that have come out in the last week that have reduced the urgency of cutting,” he said. 

“The unemployment figure was down slightly to 5.1%, and while I don’t think it was a particularly strong result, obviously it offered the RBA some comfort.”

“There’s also the CPI figure which was higher than expected. Again, I don’t think that was a particularly strong figure, but it’s pushing up towards the RBA’s 2-3% band so it may have taken some of the urgency out of cutting.”

Will the Reserve Bank cut rates in 2020?

While the official cash rate may have stayed at a record low 0.75% following today’s meeting, Marshall believes that the first cut of 2020 isn’t likely to be far away.  

“There are still plenty of issues in the economy, including the coronavirus outbreak, which is obviously having an impact on tourism and education, which is a big part of our economy nowadays.” 

“That’s why, when it comes to the next move, I think it’s only a matter of whether the RBA chooses March or April to make its cut. There’s a good chance of a second cut coming some time this year as well, though exactly when that may occur is up for debate.”

If the official cash rate does end up falling in months to come, we’re likely to see the recent decline in home loan, savings account and term deposit rates continue throughout 2020. 

According to figures from the Mozo database, home loan interest rates have dropped significantly since February 2019, helped on by three Reserve Bank cuts in June, July and October. 

The average variable home loan rate (based on a $400,000, owner occupier loan with an 80% LVR) in our database has fallen from 4.36% to 3.73% in that 12 month period, with 24 loans now featuring variable rates below the 3.00% mark. 

On the other hand, interest rates for savers have continued to decline. The average ongoing savings account rate in the Mozo database now sits at just 0.98%, while the most recent edition of the Mozo Banking Roundup noted that term deposit rate cuts outweighed increases in our database for a 16th consecutive month.

RELATED: How to stop your savings rate from dropping along with the RBA in 2020

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