Will the RBA change the cash rate in February?

author-avatar By on February 02, 2021
Will the RBA change the cash rate in February?

The central bank board meets today to discuss whether they will alter Australia's cash rate.

Check out the decision here.

Given the Reserve Bank's (RBA) correspondence it won't change the cash rate for at least three years, it seems nigh impossible we'll see any movement when the Board meets this afternoon. 

The RBA has ruled out negative rates, stating the cash rate is at its effective floor after taking the rate to a record low of 0.10% in November.

[Related: See if your lender passed on the cash rate cut here] 

Buying a home or looking to refinance? The table below features home loans with some of the lowest 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.

The central bank has also said it won't hike rates until progress is made towards full employment and inflation sits within its 2-3% target range. 

Figures from the Australian Bureau of Statistics (ABS) released last week saw inflation rise to 0.9% in the December quarter, meaning inflation has not sat in the target range for five years. 

NAB economist Tapas Strickland said the RBA would update its inflation and unemployment forecasts, given the rapid improvement seen in the economy in recent months. 

"The unemployment rate has declined to 6.6%, a full six months ahead of the RBA’s upside scenario," Mr Strickland said. 

"We expect forecast upgrades (note the forecast period will be extended to mid-2023) with market focus on the inflation track.

"Given the improvement seen in the economy, there is the possibility the revised upside scenario has core inflation back within the 2-3% band.

"This would be important for markets in trying to judge when the RBA is likely to eventually hike cash rates." 

More attention may be given to other RBA events this week than today's Board meeting, with RBA Governor Phillip Lowe making a speech on 'The Year Ahead' on Wednesday, before making his Parliamentary Testimony on Friday, and updated key forecasts released in the Statement on Monetary policy, also on Friday. 

With the cash rate unmoved until at least 2024, according to the RBA, attention is now turning to its quantitative easing (QE) program. 

The program is due to expire in April, with NAB and Westpac forecasting an extension, and the RBA's thinking expected to be revealed by Governor Lowe this week. 

"We see QE being extended, but tapered to $50bn, bringing cumulative purchases to $150bn," Mr Strickland said.

"Additionally, the RBA’s 3 year YCC target which is tied towards not lifting rates for three years will also need to be reviewed by mid-2021 given nearly a year has passed since it was first implemented."

Despite the RBA's stance on not hiking rates until at least 2024, a survey of economists by The Conversation found the majority forecast rates would be hiked prior to this. 

rbafebcut01

Source: The Conversation

Panelist Mark Crosby told The Conversation that rising home and other asset prices would put the bank under pressure on its commitment in the knowledge the economy is in a position to withstand more normal rates.

Those surveyed thought it would be some time before full employment (4.5-5%, according to the RBA) was reached, with the unemployment rate average forecast for December 2022 being 6.1%. 


Photo by Jess Bailey 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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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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