RBA interest rates in June: change a long-time coming
Rates are likely to remain on hold in June and for a long while to come, but a new record low cash rate isn’t entirely off the cards for the future, according to Mozo Data Manager Peter Marshall.
Experts are predicting no change from the Reserve Bank this month, with household debt remaining high, wages stagnating and no major economic shake-ups to prompt a shift.
“There are still a lot of mixed indicators around at the moment. Jobs are growing, but only part-time, not full-time. Retail sales rose by 1%, even when they were expected to grow by only 3 basis points, yet consumer confidence is down,” Marshall said.
“With no major reason to adjust the cash rate, it’s a pretty safe bet that rates will stay the same, as the Reserve Bank won’t want to rock the boat.”
Earlier in the year, there were expectations that the next official cash rate change would be an increase - the first since November 2010. This was bolstered by the fact that the US Fed was hiking rates, something Marshall says will still make the RBA think twice before cutting rates again.
Now, however, it’s looking more and more likely that the next move from the Reserve Bank - when it eventually comes - will see the official cash rate dip even lower than the current record low of 1.50%.
“One indicator that a rate rise is becoming less likely, is that the banks have started cutting fixed rates on home loan products. They’re no longer pricing in a rate rise, as they were earlier in the year, and instead are trying to entice borrowers to lock in a rate now. This suggests that the banks are expecting rates to stay put, or even drop within the next year,” Marshall said.
Some experts are tying the fate of interest rates to the booming Sydney and Melbourne property markets, predicting that if house prices fall and the market cools down a little, there’ll be room for the RBA to cut rates even further. But according to Marshall, it could be some time before the Reserve Bank makes a move based on fluctuations in the property market.
“We’ve had one month where property prices in Melbourne and Sydney have cooled down, which does take the pressure off a bit, but the RBA will want to see a clear downward trend in prices before they make a move to cut rates again,” he said.
Lower interest rates can boost home-buyers borrowing power, in turn leading to rising house prices. For example Mozo’s borrowing calculator shows that a single person on a $70,000 salary could afford to borrow $518,848 over 30 years, at a rate of 5.75%. If rates dropped by 0.50%, that amount would increase to $548,323.
Marshall said the Reserve Bank will likely be very cautious about reducing rates, for fear of driving property prices up any further. He predicted that rates would remain at 1.50% for the rest of 2017, and that it could be another 12 months before the RBA made any move at all.
“I think it will be quite some time before we see another move, up or down, from the Reserve Bank, unless there’s some external economic shock that drives it,” he said.