The Reserve Bank (RBA) has decided to hold the official cash rate steady at 0.75% in its board meeting today.
This is the third RBA board meeting in a row where the cash rate has been held, following no changes in both November and December (there was no meeting in January).
For a long time February had been earmarked as the month of the next cut by a wide range of economists, but expectations turned against a cut after stronger-than-expected employment data in late January.
Although the effects of bushfires and the recent coronavirus have led some to believe there would still be a cut, the leading economists from each of the big four banks had all said the next cut would occur in April.
Only three of the 25 economists surveyed by Bloomberg meanwhile believed today would see a cut, with April again being the consensus - only the economists from ING Bank, Deutsche Bank and Morgans Financial thought there would be a cut this month.
Only three economists out of 25 looking for a February cut from the #RBA with a consensus call being an April move with a significant spread of expectations through the year #ausbiz pic.twitter.com/muuucjHKoC— Alex Joiner (@IFM_Economist) January 31, 2020
The table below displays a selection of variable-rate home loans on offer, featuring a low-rate picks from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 01 June 2020. View disclaimer.
More rate cuts could still be on the cards
RBA Governor Philip Lowe said the central bank remains prepared to ease monetary policy further if needed to support its targets.
"The easing of monetary policy last year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range," he said.
"Lower interest rates have assisted with the process of household balance sheet adjustment.
"With interest rates having already been reduced to a very low level and recognising the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting.
"Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target."
Governor Lowe also eased some of the fears of the coronavirus and its effects on the Australian economy.
"Another source of uncertainty is the coronavirus, which is having a significant effect on the Chinese economy at present," he said.
"It is too early to determine how long-lasting the impact will be."
Continued pick-up in housing markets
Mr Lowe then listed continued housing market improvement as another reason for holding the cash rate.
"There are continuing signs of a pick-up in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased," he said.
"Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality."
The latest CoreLogic data yesterday showed house prices grew by 0.9% nationally in January, leading to a 4.1% annual rate of growth.
This is the fastest growth rate in three years: Melbourne led the house price increase with values up by 1.2%, followed by Sydney where prices rose by 1.1%.
CoreLogic head of Research Tim Lawless echoed Mr Lowe's views on the housing market.
"To date, lower interest rates haven’t flowed through to a material improvement in economic conditions, but housing markets have well and truly responded, with national housing values rising 6.7% since the first rate cut in June through to the end of January," Mr Lawless said.
"Importantly we may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9% over the year to November, driven by a 10% increase in owner-occupier commitments.
"Although rates remained on hold today, we are expecting the RBA to cut the cash rate later in 2020. Further rate cuts could fuel home buyer demand, although we don’t expect future cuts to the cash rate to be passed on in full to mortgage rates."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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