RBA says no to Christmas cash rate cut

RBA says no to Christmas cash rate cut

After last month's highly anticipated rate cut, the Reserve Bank has held the cash rate at 0.10% in December, as was expected.

Today's board meeting saw the cash rate remain unchanged, which was pretty much the universally expected outcome after the Reserve Bank said last month it would be leaving the cash rate unchanged for several years. 

"With the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero, interest rates have been lowered as far as it makes sense to do so in the current environment," it said. 

"The Board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely." 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, 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. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Last month was quite different however, as Governor Philip Lowe said a rate cut then made sense as the economy began to reopen post-pandemic restrictions. 

This month he maintained the cash rate would not be changed for some time.

"Given the outlook for both employment and inflation, monetary and fiscal support will be required for some time. For its part, the Board will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range," Dr Lowe said.

"For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market.

"Given the outlook, the Board is not expecting to increase the cash rate for at least 3 years."

Governor Lowe also noted that Australia's economic recovery is underway, and has generally been better than expected (something that Commonwealth Bank agrees with).

He also said that the Bank's policy response in lowering interest rates would assist a further recovery by lowering finance costs for borrowers.

"The Term Funding Facility is also supporting the supply of credit to businesses. To date, authorised deposit-taking institutions have drawn down $84 billion under this facility and have access to a further $105 billion," he said.

"The Board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The Board is prepared to do more if necessary.

"These decisions are complementary to the significant steps taken by Australian governments to support jobs and economic growth."

Very few lenders passed on the RBA's November cut to variable rates, with many instead offering sub-2% fixed rates, causing Dr Lowe to urge borrowers to switch lenders if this was the case.

[See if your lender passed on the November rate here.]

RBA in 'wait and see' mode

CoreLogic Head of Research Tim Lawless said the Reserve Bank most indicators are pointing towards a faster than expected recovery, mainly thanks to record low interest rates combined with record levels of fiscal support, as well as containing the virus successfully compared to other countries.

As this money flows through to the economy, Mr Lawless said the RBA remains in wait and see mode.

"From a housing market perspective, home buyers are clearly responding to the unprecedented levels of stimulus available," he said.

"With interest rates set to remain at these record lows for an extended period of time, attention is already focussing on how to manage associated risks of an ‘over-heated’ housing market while at the same time allowing the economy to benefit from the stimulus.

"No doubt regulators and policy makers will be watchful for excessive exuberance in the housing sector; higher household debt levels or a rise in riskier types of lending could trigger a regulatory response."

[See also from CoreLogic: November house prices rise in every capital city]

Mortgage Choice CEO Susan Mitchell meanwhile said home loan applications had grown by nearly 25% on its broker network.

“There is a lot of urgency among buyers in the market right now, particularly in the nation’s capital cities," Ms Mitchell said.

“The latest decision from the RBA means Australians can continue to take advantage of historically low home loan interest rates well into the New Year.

“If you’re a first time buyer or a prospective investor hoping to get your foot on the property ladder in 2021, now is a great time to talk to your broker about how you can put your best foot forward."


Photo by hue12 photography on Unsplash

Disclaimers

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 2020. 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 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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, Performance Drive 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.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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