RBA keeps cash rate unchanged at 1.50%

RBA cash rate

The Reserve Bank of Australia has today left the official cash rate on hold at 1.50%, marking the 30th month of no change in a row.

This announcement comes as little surprise – all 28 economists surveyed by Bloomberg predicted February’s cash rate to be held, and cash rate futures put the odds of a 25 basis point cut at just 2%.

The key reasons for holding outlined in the RBA’s statement include:

  • Trade tensions affecting global trade, and the Chinse economy continuing to slow
  • Financial conditions in the advanced economies tightening in late 2018
  • GDP growth in the September quarter weaker than expected
  • Growth in household income low over recent years, but is expected to pick up and support household spending
  • The labour market remains strong, with unemployment sitting at 5%
  • The housing markets in Sydney and Melbourne going through periods of adjustment – house prices in Sydney and Melbourne have declined by 9.68% and 8.29% year-on-year respectively, while the five biggest capital cities declined by an aggregate of 7.25%

Despite the stagnant cash rate, home lenders are continuing to do their own thing and change rates as they see fit. Several key lenders have raised their home loan interest rates in the last couple of weeks.

Term deposit rates meanwhile have decreased, especially six-month term deposits, which recently hit an all-time low on average.

RBA  Governor Phillip Lowe said in his statement that the current low level of interest rates is continuing to support the Australian economy, with further progress in reducing unemployment and hitting the target inflation rate expected, albeit at a gradual rate.

The RBA board judged that holding the cash rate steady in line with previous months would “be consistent with sustainable growth in the economy and achieving the inflation target over time”.

The Aussie dollar spiked in the wake of the announcement, rebounding to 72.5 US cents after the disappointing December retail sales figures released this morning sent the dollar below 72 cents.

There were more changes to the RBA’s statement than usual.

What does the cash rate have in store in 2019?

February was the first cash rate announcement of the year, and while it was business as usual for the RBA, there is a growing contingent of economists who predict that 2019 will see a cut of 25 basis points.

This would leave the cash rate at a new record low of 1.25%.

Housing market pressures, flat wages growth and sluggish retail spending could all be precursors to this potential rate cut.

Financial markets are now showing a greater than 50% chance that the cash rate will be lowered by the end of the year.


william.jolly@savings.com.au

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