No April surprise as RBA keeps rates locked at 1.50%

The Reserve Bank Board has once again held the official cash rate at a record low 1.50% following it’s monthly meeting in Sydney this afternoon.

The Board’s decision to maintain interest rates in April marks the 29th consecutive meeting without change, with the most recent move in either direction dating all the way back to August 2016 when rates were cut from 1.75% to 1.50%.

"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," said RBA Governor, Philip Lowe, in his post-announcement statement. 

"Taking account of the available information, the Board judged that it was appropriate to hold the stance of policy unchanged at this meeting."

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Despite the RBA’s recent rate consistency pundits and experts alike have continued to make noise suggesting a rate cut may be just around the corner, especially given the state of many key economic indicators at home and abroad.

According to Mozo Product Data Manager, Peter Marshall, it’s just a matter of time until interest rates are cut, with the country’s low unemployment rate one of the only indicators holding the RBA back.

“The last thing that the RBA are pinning their reluctance to is the unemployment rate which has held up so far, but I think that it’s only a matter of time until they crack on that criteria given that, despite an increase in part time jobs, we’re actually losing full time jobs,” Marshall said.   

“Combine that with the flow on effects from the housing downturn as well as an extremely low CPI and it really wouldn’t surprise me if the RBA chose to cut rates twice this year - potentially as early as May.” 

Are banks already adjusting for a cut?  

Pundits aren’t the only ones predicting a future cut though, as there are increasing signs that banks are already adjusting their product rates in anticipation.   

“There have been plenty of signs that banks are preparing for a cut. Fixed rate home loans have been falling for the last few months and term deposits are really backing off quickly,” said Marshall.

“UBank has cut term deposit rates twice in the last three weeks which is very unusual for them, and I consider that one of the best indicators that they believe that this is the direction we’re going in.”

But for many Australians, the main focus of any potential rate cut will be the impact it will have on their home loan rates. So what are lenders likely to do in the event of an RBA cut?  

If we wind back time to August 2, 2016 (the day of the last RBA cut), it’s clear that the major banks were quick to announce cuts to their respective standard variable rate home loans, but none of the four major banks actually passed on the full 25 basis point cut.

Bank	Cut Passed On	Date Effective
ANZ	12 basis points (0.12%)	12/08/2016
Commonwealth Bank	13 basis points (0.13%)	19/08/2016
NAB	10 basis points (0.10%)	19/08/2016
Westpac	14 basis points (0.14%)	23/08/2016

While it’s unclear how the banks would respond to a potential rate cut in 2019, Marshall suggested that mortgage holders shouldn’t get their hopes up.

“The banks will likely pass on maybe half of what the RBA cut rates by. Having said that, funding costs have started to ease off, so we could get a nice surprise and find that the banks are more prepared to pass on a full RBA rate cut.”

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Don’t want to wait for an official rate cut to see if you can snag a discount on your home loan? Head over to the Mozo refinance home loans comparison hub to see if you can switch to a more competitive rate today.