Will the RBA cut the cash rate today?

author-avatar By on February 04, 2020
Will the RBA cut the cash rate today?

Photo by Pixabay from Pexels

Will they or won't they? We take a look at what the economists think.

The long-predicted February cash rate cut has been thrown into doubt, with economists and property experts split on whether the Reserve Bank will cut rates today.

Expectations turned against a cut after stronger than expected unemployment figures came as a shock to many economists, who had widely predicted the rate would rise to 5.3%.

Ahead of the Reserve Bank's meeting later today, we take a look at what several economists and property experts think of the chances for a rate cut.

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.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME 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%
LIMITED TIME 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%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

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 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. Rates correct as of October 19, 2021. View disclaimer.

"The Reserve Bank will 'hold' the cash rate"

Firmly planted in the 'hold' camp are all the economists from the big four banks. 

Commonwealth Bank

CommSec Chief Economist Craig James said the job market is in better shape than generally assumed and expects no change to the cash rate in February.

"The hope is that the job market will continue to tighten, and this will serve to push up wages and prices," Mr James said.

"The Reserve Bank can stay on the sidelines for now. But clearly the level of interest rates is already super-stimulatory."

Having previously expected the next RBA rate cut to occur in February, the surprisingly positive employment data released last month led CommBank Group economists to push this forecast out to April. 

ANZ

Head of Australian Economics David Plank tweeted that the bank had changed their prediction following the unemployment figures and no longer expects a rate cut in February. 

Mr Plank said unusual influences on economic sentiment such as the bushfires and coronavirus are making it more difficult than usual to assess consumer spending. 

"We think this difficulty will see the RBA opting to wait for more information before it considers a further reduction in the cash rate," he said. 

Westpac

Westpac Chief Economist Bill Evans said the unemployment rate decrease wasn't unprecedented, but was still enough of a reason for the RBA to hold rates.

"Over the last five years there have been six occasions when the unemployment rate has fallen in back to back months by a total of 0.2% or more," Mr Evans said. 

"However, it is sufficiently strong a signal for the Board, which has emphasised the labour market as a key policy driver, to opt for a deferment of the rate cut process pending further information."

Mr Evans added that 2020 would still see two cash rate cuts from the central bank, and that the second would introduce quantitative easing.

"Westpac now expects that the Reserve Bank will delay its next cut in the cash rate to April with the final cut to 0.25% occurring in August."

National Australia Bank (NAB)

Initially, NAB was all alone in their prediction that the RBA would cut interest rates in February, with Director of Economics Tapas Strickland admitting the unemployment numbers made a cut less likely, but that the RBA remained some way away from its goals.

"While no doubt the timing of rate cuts for H1 2020 is less certain given the solid jobs figures, the RBA still remains some distance away from full employment and we still expect the RBA to cut rates in February as it downgrades its growth outlook on soft consumer data, amid ongoing labour market spare capacity and little inflationary pressure," Mr Strickland said.

But NAB chief economist Alan Oster changed the banks' tune last week.

"The RBA will stay on hold in February, using the recent improvement in the unemployment rate to buy time - suggesting the bank will continue to react to the accumulation of evidence very gradually," Mr Oster said.

"Unless the RBA wishes to move against market expectations, the February rate cut appears off the table. 

"Consequently, we have moved the timing of the next cut to April followed by a second cut around mid-year. Beyond that the risk of a move to ‘unconventional’ policy in H2 2020 will depend critically on whether the labour market deteriorates more significantly than we forecast."

"The Reserve Bank will cut interest rates"

A small group of economists still believe the Reserve Bank will cut rates today, according to a Bloomberg market economist survey. 

Those in the 'cut' camp include the economists from ING Bank, Deutsche Bank and Morgans Financial. 

Voters are against a rate cut

A focus group polling conducted by The Australian Financial Review last week found voters "did not believe a further cut would have a meaningful impact on the economy".

The research showed concern among retired voters about the record low interest rates and the prospect of them remaining that way for quite some time.

Those with mortgages, on the other hand, were unsurprisingly happy with the low rates.


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): Great Southern Bank, 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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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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