Yesterday (7 May 2019), the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 30th consecutive meeting.
Here’s a quick rundown of what happened.
With respect to the housing market:
- The adjustment in established housing markets is continuing after the earlier large run-up in prices in some cities.
- Conditions remain soft and rent inflation remains low.
- Credit conditions for some borrowers have tightened over the past year or so.
- Meanwhile, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed.
- Growth in credit extended to owner-occupiers has eased over the past year.
- Mortgage rates remain low and there is strong competition for borrowers of high credit quality.
With respect to jobs and unemployment:
- The labour market remains strong with a significant increase in employment, the vacancy rate remains high and there are reports of skills shortages in some areas.
- The unemployment rate has held steady at around 5 per cent over and is expected to remain there over the next year or so, before declining a little to 4.75 per cent in 2021.
- The strong employment growth over the past year or so has led to some pick-up in wages growth.
With respect to growth:
- The central scenario is for the Australian economy to grow by around 2.75 per cent in 2019 and 2020.
- The growth outlook is being supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports.
- The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices.
- Some pick-up in growth in household disposable income is expected and this should support consumption.
With respect to inflation:
- The inflation data for the March quarter were noticeably lower than expected and suggest subdued inflationary pressures across much of the economy.
- Over the year, inflation was 1.3 per cent and, in underlying terms, was 1.6 per cent.
- The central scenario is for underlying inflation to be 1.75 per cent this year and 2 per cent in 2020.
- In headline terms, inflation is expected to be around 2 per cent this year, boosted by the recent increase in petrol prices.
The Reserve Board Members concluded that given the available information, the monetary policy would remain unchanged.
In doing so, they recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.
CoreLogic
“The flat CPI reading for the March quarter wasn’t enough to drag interest rates lower, although the likelihood of a cash rate cut over coming months remains high,” said CoreLogic’s Head of Research, Tim Lawless.
“While inflation remains below the RBA’s target range, labour markets generally remain relatively strong, supported by NSW and Vic and the decline in housing values has lost some speed over recent months.
“If the cash rate does move lower later this year, a reduction in mortgage rates would provide some support for housing demand, however we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts.
“Generally, housing sentiment remains low and borrower mortgage serviceability is still assessed based on mortgage rates of at least 7 per cent.
“Households who already have a mortgage, or prospective borrowers who are able to satisfy lender credit policies will be the winners if interest rates do fall later this year.”
AMP Capital
#RBA holds for 30th meeting.
Lowers 2019 grth forecast to 2.75% (from 3%)
Lowers 2019 underlying infl to 1.75% (from 2%) & 2020 to 2%(from 2.25%)
Bit of a dovish comment in last para re continuing spare capacity & improvement in jobs mkt needed.
We continue to see 2 cuts this yr— Shane Oliver (@ShaneOliverAMP) May 7, 2019
Rate City
The RBA has resisted calls to cut the official cash rate, but will be looking closely at this month’s employment data before they pull the trigger.
Sally Tindall, Research Director at Rate City, said borrowers might have to wait until August before getting a rate cut.
“Australia didn’t get a rate cut today, but it’s still not off the cards. Based on today’s statement from Phillip Lowe, its likely they’ll hold off until they see more consistent trends in employment and inflation,” she said.
“But consumers don’t have to wait for the RBA to save money on their home loan.
“The downturn in the market is putting pressure on banks’ bottom lines. What they need is more business on their books.
“The best way for borrowers to get a rate cut is to turn themselves from an existing customer into a new one,” she said.
Mortgage Choice
In an unsurprising decision, the @RBAInfo has decided to hold the nation’s official cash rate at 1.50%. If you want to take advantage of historic low interest rates and realise your property ownership dreams, contact your local mortgage expert today https://t.co/Oh7dUu7p3Q
— Mortgage Choice (@MortgageChoice) May 7, 2019
“A change to the cash rate, less than a fortnight out from the federal election would have been a remarkable decision from the Reserve Bank, even though financial markets have fully priced in a rate cut to occur in the short-term,” Mortgage Choice Chief Executive Officer, Susan Mitchell said.
“Moreover, history shows us that the fiercely apolitical RBA does not move on the cash rate in the middle of an election campaign for fear of making monetary policy a political football.”
CommSec
Aussie dollar spikes as the #RBA keeps rates on hold. Market was pricing in a 44% chance of a rate cut today. Aussie buys US$0.7036 (US$0.699 minutes ago) #ausbiz
— CommSec (@CommSec) May 7, 2019
