RBA hints another rate cut could happen by mid-2020

author-avatar By on February 18, 2020
RBA hints another rate cut could happen by mid-2020

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Despite better than expected unemployment figures and the recent acceleration in home loan lending, Australia's central bank has left the door open to a rate cut in 2020.

In the minutes of its February monetary policy meeting, the board of the Reserve Bank of Australia (RBA) acknowledged that while there were positive movements in the nation's employment, inflation and property price figures, household consumption and wage growth remained weak. 

The minutes, released today, also revealed the decision to hold the rate steady at 0.75% in February was made amid concerns about the effect of very low interest rates on the confidence of some consumers, particularly those reliant on their savings.

The board also considered that another rate cut might encourage more borrowing amid an already strong upswing in the housing market. 

"Members agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target," the minutes said.

"The Board would continue to monitor developments carefully, including in the labour market, and remained prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time." 

While many mainstream economists expect the RBA to cut the cash rate in April 2020, only 16% of Australian adults expect any rate cuts at all this year. 

Board members noted that consumers are tightening the purse strings and paying down debts faster in response to low wage growth.

But amid the recovery in house prices, the board suggested this could change.

"Looking ahead, the Bank's forecast was for growth in consumption to increase gradually, sustained by moderate growth in household disposable income and the recovery in the housing market," the minutes said. 

Since mid-2019, the Reserve Bank has made three cuts to the cash rate, from 1.5% to 0.75%.

Despite the 75 basis point cut, the RBA said only around 60 basis points of this had been passed through to standard variable mortgage rates.

"The actual rates that households were paying on their outstanding variable-rate loans had declined by more than this, with the average rate declining by almost 70 basis points over the same period," the minutes said.

"This additional decline reflected strong competition among lenders for high-quality borrowers and households continuing to switch from (more expensive) interest-only loans.

"If this were to continue, by around mid 2020 the average rate paid on outstanding variable-rate mortgages would have declined by around 75 basis points since May 2019."


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Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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