RBA holds rates at 1.50% in March, but is a cut looming on the horizon?
Tuesday 05 March 2019
The official cash rate has once again remained fixed at a record low 1.50% following the latest Reserve Bank Board meeting this afternoon in Sydney.
Despite a growing chorus of pundits and experts suggesting that the RBA will be required to cut interest rates in the near future, the board resisted temptation for at least another month with RBA Governor, Philip Lowe, stating that rate stability was currently necessary to maintain economic growth.
"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," he said.
"Taking account of the available information, the [RBA] Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."
The latest decision means rates have been on hold for 28 consecutive meetings, but Mozo Product Data Manager, Peter Marshall, believes that a mounting combination of factors could force the RBA to cut rates not once, but twice, before the year is out.
“For the last couple of months I’ve been talking more definitively about the next rate change being a cut, and I think the case for that is strengthening,” he said.
“I still don’t think the RBA’s going to rush into anything though - it’s not their style. They don’t have many cuts left in the bank, so they’ll want to apply what they do have left quite judiciously, so I expect that they’ll wait until May or June before making a move.”
What are the factors putting pressure on the RBA?
For a considerable time the RBA had indicated that a future cash rate change, when it does come, was expected to be a rate rise.
But during a speech in early February, RBA Governor, Philip Lowe, altered that sentiment by suggesting that the probabilities of a hike or a cut were now more evenly balanced.
“The RBA would much rather be pushing rates up in order to give us some scope to cut rates in the case of a future shock, so I really don’t think they’ll be happy about cutting rates if they do decide to do it this year,” said Marshall.
“But there are just so many different things going on at the moment that even without a particularly massive one off external shock the economy is under even more pressure than what it was a few months ago.”
So with the RBA having altered its tune, and many commentators believing that a drop in the official cash rate is well and truly on the cards, just what are some of the factors driving a potential cut in the near future?
Peter Marshall shared his take on the state of some of the key economic indicators.
“Employment figures are very good at the moment - in fact, unemployment in New South Wales now sits at just 3.9%. But there are big signs that that’s not going to last. There are a few different parts of the economy which are really starting to struggle and that will likely flow through to the unemployment figures in the coming months.”
“The fourth quarter GDP figure, which will be released tomorrow, is expected to be extremely weak. There are a lot of forecasts that the growth figure will be around 0.4% or 0.5%, so at an annual rate that would take us to less than 2%. That’s well below the 3% figure the RBA consistently cites.”
“The sliding housing market, which has been particularly evident in Sydney in Melbourne so far, is still on the downslope, which is starting to have an effect on the jobs market with a lot of developers and construction companies getting into a bit of strife.”
“It’s also worth noting that mortgage arrears are starting to go up, which will also be of concern.”
Interest rates on your mind? The official cash rate may be beyond your control, but that doesn’t mean you can’t influence the rates you’re getting on your everyday banking products.
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