Will the RBA change the cash rate in February?

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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.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
QLD/NSW/VIC/SA METRO & INNER REGIONAL AREAS
QLD/NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

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%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of July 3, 2022. View disclaimer.

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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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