RBA Announcement December 2021

There were no Christmas surprises today as the RBA elected to leave the cash rate unchanged at 0.1% at its last meeting until February next year.

After RBA Governor Philip Lowe sought to hose down rate rise speculation following the November board meeting, a movement today was never going to be on the cards.

Bank movements fly in face of central policy

While the RBA has not moved the official cash rate for more than a year, individual lenders in Australia have been anything but static during 2021.

New research from RateCity shows that banks across the board have slashed variable rates and hiked fixed rates during the year as they set themselves up to deal with potential rate rises in the future and tighter lending restrictions from APRA.

Big cuts on variables

The Ratecity data shows 86% of the lenders on its database have cut variable rates during the year. That’s 107 loan products being discounted to attract borrowers. The big four banks cut their basic variable rates by an average of 0.43% since the end of 2020.

Since that time, the number of loans available with rates below 2% has grown from 15 to 65.

So what’s the catch? Well, odds are that you don’t fit the criteria for these loans. The reason being that they are the basic variables for most banks (or loans lacking in flexible features), aimed largely at first time borrowers and new customers.

RateCity research director Sally Tindall said the fact that banks had neglected to pass on rate reductions in 2020 meant they had room to move to lower them this year in a bid to attract new customers.

Competition in the marketplace has brought these rates down to where they should be,” she said. “However, these ultra-low variable rate cuts are primarily for new customers. Existing variable customers who haven’t haggled with their bank recently are likely to be paying the same rate they were on in March last year.”

A number of economists predict the RBA to begin to increase the cash rate before the end of 2022 and then make further hikes during 2023. If this does happen, rest assured that lenders will be upping their variable rates too.

Of course, it is a big ‘IF’. There are a number of contrarian types out there that think rates may still go down before they go up and potentially even into negative territory.

If it ain’t broke, should you fix it?

Fixed rate products have been moving in the opposite direction recently, after starting the year also on a downward trajectory.

Reductions were par for the course in the first quarter of the calendar year, before fixed rate products below 2% peaked in April at 180. As that happened, 4 and 5-year fixed rates began to be increased by banks as talk gathered of rate rises in the near future.

Improving economic forecasts since July have seen further rate hikes across the board, leaving us with just 73 fixed rates under 2% as we end 2021. Those are predicted to wind down quickly in the new year.

“Fixed rates are likely to keep rising across 2022 as global economies continue to recover from the pandemic and central banks around the world start to lift official interest rates,” Sally Tindall said. “By this time next year, there could be no fixed rates under 2 per cent. In fact, the majority of fixed rates for owner-occupiers are likely to start with a ‘3’.

“Anyone currently on a fixed rate needs to prepare to pay significantly more when their term ends.”

Crypto arrives in big bank world

Another significant occurrence this year was an announcement by Commonwealth Bank that it would allow its customers to hold and trade Bitcoin and other cryptocurrencies via its banking app.

This was the first time the major lenders had actually acknowledged the future of cryptocurrencies by changing the way they operate to meet customer demand to make them more accessible.

And a recent survey of economists by Finder revealed that three quarters expect the other major banks to follow suit.

Finder’s head of consumer research Graham Cooke said Australia has the third-highest rate of cryptocurrency ownership, which shows that the trend is likely to increase going forward.

 

 

RBA Announcement November 2021

It’s all about the number ‘1’ this month for the RBA, after it left rates on hold yet again at its November meeting.

It’s now 1 year since the official cash rate was last changed…and 11 years since the rate was last increased. Meanwhile, there are now more than 200 home loan product rates that begin with a 1, but more about that later.

What the RBA said

RBA governor Philip Lowe said Australia’s economic recovery from Covid was underway and that the central forecast for GDP was growth of 3% over 2021, followed by 5.5% and 2.5% over 2022 and 2023 and an improvement in employment levels provided there were no further setbacks on the health front.

The Delta outbreak caused hours worked in Australia to fall sharply, but a bounce-back is now underway,” Lowe said in a statement. “The Bank’s business liaison and the data on job ads suggest that many firms are now hiring, which will boost employment over coming months. The central forecast is for the unemployment rate to trend lower over the next couple of years, reaching 4.25% at the end of 2022 and 4% at the end of 2023.

A number of analysts are now starting to mention that inflation, currently at 2.1%, has hit the RBA’s target range for a rate rise earlier than expected, but Lowe remains cautious.

“Inflation has picked up, but in underlying terms is still low, at 2.1 per cent,” he said. “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time.”

Lowe noted that housing prices continue to rise in most markets and said he “welcomes APRA’s recent decision to increase the interest rate serviceability buffer on home loans.”

This time last year

When the RBA made the choice in November last year to slash the cash rate from 0.25 to 0.1%, there were just 19 home loan products with an interest rate below 2%. Of these, 6 were variable, 9 were 1-year fixed, 1 was 2-year fixed and 3 were 3-year fixed, according to research from RateCity.

Now, there are 202 home loans with interest rates starting with a 1. Of these, 62 are variable, 54 are 1-year fixed, 70 are 2-year fixed and 16 are 3-year fixed.

Today, just like 1 year ago, there are zero 4-year or 5-year fixed rate products with rates below 2%.

The property market has seen very strong value growth in the year since the last rate movement and RateCity research director Sally Tindall believes the spike is a direct result.

“The surge in home loan rates under 2 per cent since last November helped set the property market alight and in doing so, has widened the gap between those already in the market, and those priced out,” Tindall said. “In the last 12 months, the average house price has jumped $350,505 in Sydney and $162,138 nationally.

Where does it all end?

Tindall believes the potential for a rise in rates, plus the effect of recent APRA changes to serviceability buffers will see the property market eventually run out of steam.

The eye-popping property price rises over the last 12 months aren’t likely to continue into 2022 at the same pace, with fixed rates already on the rise and renewed speculation a cash rate hike will come earlier than 2024,” she said. “APRA is also at the ready to reign in the number of households head over heels in debt, with its new 3% serviceability buffer due to kick in … along with a threat to take further action if needed.”

Meanwhile, AMP’s Shane Oliver says the second half of 2022 is when he believes the market will hit is ceiling, followed by potential value falls in 2023.

“By the end of next year, I think the upswing will come to an end, and we’ll start to see price falls as higher interest rates feed through,” he told the Australian Financial Review this week. “I think later next year, we’ll start to see higher variable rates, and the combination of higher interest rates, poor affordability and increased listings, I think will start to weigh on the property market.”

 

 

RBA Announcement October 2021

There were no surprises today as the RBA voted to keep rates on hold at 0.1% at its October meeting.

The central bank also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue purchasing government securities at $4 billion a week until at least February next year.

RBA governor Philip Lowe noted that the Delta outbreak of Coronavirus continued to disrupt the recovery of the Australian economy, but maintained it was still just a temporary setback.

“Many businesses are now planning for the easing of restrictions and confidence has held up reasonably well,” he said in a statement. “There is, however, uncertainty about the timing and pace of the bounceback and it is likely to be slower than earlier in the year…In our central scenario, the economy will be growing again in the December quarter.”

For AMP economist Shane Oliver, it was a case of another month having passed, rate movements no closer than before.

“The RBA’s stated conditions for a rate hike, i.e. actual inflation sustainably in the 2% to 3% target zone, are far from being met,” he said. “This will require sustained employment of around 4% and wage growth of 3% or more and that’s a fair way off.”

Rate expectations

But while the RBA reaffirms its promise not to raise interest rates until at least 2024, there is gathering talk among analysts that major banks will take their own action and raise variable rates out of cycle.

An October survey of 28 economists by comparison platform Finder found that 50% expected Big Four lenders would lift their standard rates within the next year.

Stability in the official cash rate did not mean lenders would follow suit, according to Finder head of consumer research Graham Cooke.

“Data from the RBA shows banks changed their rates seven times during the last stable period. Four of those changes were rate increases,” he said. “Those who aren’t on a fixed mortgage rate should stay alert to any changes from their banks as it could mean substantially higher monthly repayments.”

Pressure on home buyers

Any rate rises would have to be managed carefully, with borrowers stretching themselves to keep up with rising property values. In fact the research revealed first home buyers are borrowing over $53,000 more mortgage debt this year than they did last year, exposing them to more pressure should rates rise.

Because of this, 55% of the experts in the survey said they expected the Australian Prudential Regulation Authority (APRA) to intervene with lending restrictions in order to stem market growth.

“APRA recently confirmed they were looking closely at income to price ratios,” Cooke said. “This could be an early indication that lending restrictions are coming.”

APRA restrictions usually target investors to deter them from taking affordable stock off the hands of first home buyers, so watch this space to see how your portfolio might be affected.

Not so fast

Before we start to panic about lenders going rogue and hiking rates, current trends show they are still reducing their variable rates in order to compete for borrowers.

The latest RateCity research found 27 lenders cut at least one variable rate during September.

RateCity research director Sally Tindall suggested variable cuts were where lenders could compete in the short term, while adopting a “wait and see approach” on most fixed rates “as they work out what impact Australia’s Covid recovery plan will have on the economy”.

“However, this hasn’t stopped many lenders from taking the scissors to their more malleable variable rates, which were lagging well behind fixed rates,” she said. “When the RBA cut the cash rate last November there were just six variable rates under 2%. Today there are 48, including five investor rates. After the last two cash rate cuts, variable rates barely moved as most lenders opted to drop fixed rates instead. If anything, these cuts are overdue.”

Rush to refinance

It’s easy to see why banks are cutting variable rates at the moment, because borrowers are in a refinancing frenzy and there is plenty of new business to be acquired.

The last two months have seen record highs with refinanced loans valued at $17.8 billion in August.

With all the deals out there, it’s a great time to score a better rate or more flexible loan features. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy, with the deals that suit you best.

 

 

RBA Announcement September 2021

The RBA left the cash rate on hold at 0.1% at its September meeting, surprising no one..

The central bank has been telling everyone for some time now that it won’t consider a rate rise until at least 2024, even though some analysts are predicting it will hike earlier than this. And it also remains determined not to cut again and risk going into negative territory, though other analysts think negative interest rates are far more likely than an increase anytime soon.

“Prior to the Delta outbreak the Australian economy had considerable momentum,” RBA governor Philip Lowe said. “GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year. Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”

Lowe said Australia’s economic recovery had been “interrupted by the Delta outbreak and the associated restrictions on activity” and that he expected a decline in GDP in the next quarter and a rise in unemployment.

However he said some areas are “continuing to grow strongly” and the setback to the economic expansion “is expected to be only temporary.”

Taper the talk of the town

Much of the contention and anticipation in the lead up to the meeting had all been about whether the RBA would taper down its buying of bonds from $5 billion a week to $4 billion a week.

September was the month it planned to make that reduction, but there had been widespread debate from forecasters and major lenders about whether it would actually happen.

On one side of the coin, NAB was predicting it would continue with the reduction as planned. On the other side, ANZ anticipated a month’s delay to get a better idea of when and what lockdown restrictions might be lifted or eased in major cities. Most analysts expect a strong post-lockdown economic rebound, which could come this year or next year.

So what was the call?

Spoiler alert, the RBA surprised quite a few when it decided to stick to its plan.

The Board’s decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak,” Lowe said. “These bond purchases, together with the low level of the cash rate, the yield target and the funding that has been provided under the Term Funding Facility, are providing substantial and ongoing support to the Australian economy.

Banks battle for borrowers

Continued uncertainty is a win for would-be borrowers, with banks dropping variable rates in a bid to attract new customers.

Fixed home loan rates may continue to rise, but in a further show that we won’t have to worry about higher variable mortgage payments for a long time yet, RateCity research found the number of variable rates under 2% in the market has leapt from 28 products to 46 in just 2 months.

The 68% increase has happened in spite of there being no official rate movement since November last year.

“Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates,” RateCity research director Sally Tindall said, adding that ABS data showed refinancing hit another record high in July with $17.22 billion in loans settled for the month. “The latest surge in refinancing is putting pressure on the banks to keep their rates competitive.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

Reach out for a better deal

Each month, regardless of what the RBA decides to do, there are deals out there to be made. It’s a great time to be a borrower and it’s rare that your current deal is the best one available to you. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy for structuring your finance and find the deals that suit you best.

 

 

RBA Announcement – August 2021

The RBA left the official cash rate on hold at 0.1% today, as rolling lockdowns keep Australia in a state of economic uncertainty.

RBA governor Philip Lowe had already reaffirmed his intention not to raise rates until at least 2024, but some analysts thought the move might come earlier. However, the Delta variant of Covid and the constant lockdowns called around major capitals has that speculation on ice for now.

At its monthly board meeting, the RBA also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue its stimulus measures of purchasing government securities at a rate of $5 billion a week until September and then $4 billion a week until November and potentially beyond.

In its media statement the RBA noted that while the economic recovery in Australia has been stronger than was expected, recession was on the cards, saying “the recent outbreaks of the virus are interrupting the recovery and GDP is expected to decline in the September quarter”.

However, the central bank expects a fast recovery next year. “The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery,” it said.

The RBA says it will continue to monitor and review its approach to the rate of bond purchases, according to economic condition and the nation’s health situation. The board still believes conditions will not warrant a rate increase until 2024.

Sentiment suffers

Meanwhile, a recent survey of 40 experts and economists by Finder revealed that two in five believed another two months of lockdown could cause another recession.

The positivity around Australia’s quicker than expected recovery from last year’s lockdowns has disappeared in a flash, with confidence in key indicators such as housing affordability, employment, wage growth, cost of living and household debt all plummeting. Confidence in employment had the sharpest fall, going from 71% in July to 29% in August.

Other key takeaways from the survey of experts included 52% believing household debts would increase due to lockdowns; while 43% believe Australia’s response to the pandemic has seen our international reputation take a hit.

“Economists fear that a prolonged lockdown could push us into recession, and the extension of the measures in Sydney will get us a third of the way there,” said Graham Cooke, Finder head of consumer research.

Give yourself a rate cut

There may be a pause on talk of official cash rate rises, but there have been a number of interest rate movements from lenders in recent times. While fixed rate products have been subject to interest rate hikes, the opposite is happening in variable rate markets according to further research.

A RateCity study shows 49 lenders have cut at least one variable rate in the past two months. Sounds good, but your bank is unlikely to come to you with a better deal, according to RateCity research director Sally Tindall.

“Variable rates are at record lows, however, most of these deals are reserved for new customers, not existing ones, unless you specifically ask,” she said, adding that the best way to get a better deal was to pick up the phone and ask.

“Before you call, check what rate your bank is giving new customers for the same home loan, but also find out what other lenders have on offer,” she suggested.

“If you are paying significantly more than a new customer, pick up the phone and ask your bank ‘why?’.”

The RateCity study found that more than 73% of bank customers they had surveyed were successful when they asked their bank for a personal rate cut.

“If you have a good track record of paying down your debt, and the bank thinks you might switch to a more competitive lender, they’re likely to play ball,” Tindall said, noting that a reduction of just 0.25% could save you more than $1000 a year on loan repayments.

“A lot of people think a handful of basis points won’t make much of a difference, but if the discount is permanent, then the savings can potentially run into the thousands in just a few years.”

 

 

RBA Announcement – July 2021

The first RBA board meeting of the new financial year was one of the most eagerly anticipated in some time. Not because of what might happen with interest rates – which incidentally were left on hold at 0.1% for the eighth consecutive month – but because the RBA was expected to begin winding back parts of its quantitative easing program as the economy continues to recover from coronavirus ahead of schedule.

Since Australia first went into lockdown in 2020, the RBA has splashed out hundreds of billions of dollars on government bonds and kept the yield on three-year government debt under control in order to offer cheap loans to banks…who would then pass more affordable money onto borrowers.

But is all that still necessary?

Three main goals

There has been plenty of speculation from economists and so-called experts that the RBA will raise official interest rates earlier than its repeated promise of “not before 2024”.

In order to consider moving rates away from the historic low of 0.1% and back up towards longer term averages, the RBA wants to see the unemployment rate keep travelling down, wages growth begin to grow again and inflation to get back to a target bracket of 2 to 3%.

And at least one of those boxes is ticked, with unemployment now down to 5.1%, a 17-month low, even as we head into another series of lockdowns in various parts of the country. There are more people employed than before the pandemic kicked off, which is also partly due to the decline in overseas worker arrivals with international borders closed.

However, the RBA statement from today noted that “despite the strong recovery in jobs and reports of labour shortages, inflation and wage outcomes remain subdued”. The statement added that the RBA expects a gradual and modest pick-up in inflation and wages growth, with inflation likely to only reach 2% by mid-2023, after a short-term bounce to 3.5% over the next year due to the reversal of Covid-related price reductions from the previous year.

RBA takes cautious first steps

The anticipated first step to take in getting things back to some kind of normal was to end the targeting of a yield of 0.1 per cent on three-year government bonds. The RBA today however announced it would continue to maintain the current target to “keep interest rates low at the short end of the yield curve and support low funding costs in Australia”.

The next thing to do would be to wind back the level of spending on government debt. The $100 billion quantitative easing program announced in November last year will finish in September.

The RBA today confirmed that it would continue to purchase government bonds after September but would respond to the strengthening economy by adjusting its weekly spend to $4 billion, down from the current spend of around $5 billion. The new spend will be in place until at least mid-November, at which stage the RBA can take stock of the situation again.

So will official rates rise sooner than expected?

The RBA continues to stand firm and say it won’t be in a position to raise rates until at least 2024.

Even though the housing market is strong across major markets, with value growth, housing credit growth and increased borrowing from owner-occupiers and investors, the central bank says it will not increase the cash rate “until inflation is sustainably within the 2 to 3% target range”.

What about the unofficial rates?

As we’ve reported in recent months, Australian lenders are already increasing their rates independently of the central bank.

They began by raising rates on five and four-year fixed rate mortgage products but have since begun to target three and even two-year loans.

A recent analysis found that in the last month, 19 lenders increased a three-year fixed rate, including Westpac and NAB, while 17 increased a two-year fixed rate.

This was the first month that the number of lenders hiking a two-year fixed rate outnumbered those cutting (albeit only by one, 17-16). Meanwhile, for one-year fixed rates, 13 lenders cut, while 11 hiked.

There are still close to 200 loan products out there in the market for below 2%. So, if you are worried, you’re not on the best deal, remember to regularly see what’s out there and refinance when necessary.

 

 

RBA Cash Rate Announcement – June 2021

The RBA made it seven straight months with no cash rate movements today, leaving the official rate on hold at 0.1% during its June meeting.

The decision was never in real doubt, with no recognised finance analysts predicting a rise or fall.

The RBA board has decided to keep in place its current policy settings, including targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond.

The central bank maintains that the global economy is recovering strongly from the pandemic and that the outlook for growth is strong for this year and next.

However, don’t mention that to the Victorians currently wallowing in their fourth pandemic lockdown, as they might be a little less optimistic. 

Making noise about rate rises

Recent months have seen the RBA claim it won’t consider a rate rise until 2024 at the earliest, but that hasn’t stopped some banks from lifting rates on home loan products with fixed terms of 3 years and over.

Some analysts have noted that the continued downward trajectory of unemployment rates from 5.8% in February and 5.6% in March plus positive recent economic reports by central banks in New Zealand, Canada and the USA may give the RBA cause to consider withdrawing some of its current stimulus measures. This would potentially send the Australian dollar higher and raise expectations for interest rate hikes.

However, other commentators point to the fact that inflation is close to, or above target, in New Zealand, Canada and the USA, while it is still a long way below where it would need to be in Australia for the RBA to consider a hike.

The jobs market is still a long way from full employment, wages growth at 1.5% is way below the 3% plus pace necessary to sustain 2-3% inflation and in any case, inflation is still well below its target zone,” AMP economist Shane Oliver said. “So, a rate hike remains some time off.

No doubt the RBA would dearly love to be in a position to raise rates but for the moment at least, they are stuck on this historic low with the looming threat of further rate cuts still a distinct possibility.

Investors making waves in housing

Data out last week showed that housing credit grew by 0.5% in April, adding up to now be 4.4% higher for the year and the RBA has noticed that lending to property investors has increased.

The washout from hot property markets across Australia is that credit growth is likely to quicken in the next few months as new lending to both investors and owner-occupiers is up by more than 50% year on year.

It makes sense as property investors are buoyed by recent property results across capital cities and major regional hubs and want to get a piece of the double-digit growth primed for this year across various property markets.

The RBA will be under some pressure to keep an eye on this increase in credit as housing markets look likely to remain strong during the traditional slowdown period in the winter months.

Banks moving independently

If there’s one thing, we have grown accustomed to from banks, it’s the passing on to borrowers of any additional costs or hardships to the bottom line.

Therefore, it’s not surprising that the RBA’s potential withdrawal of pandemic stimulus for banks has seen some lenders move to raise rates independently. In addition to long term fixed rates tracking upwards, we may soon see rates on shorter term fixed products increased too.

You should follow suit

In the same way that banks move independently, outside of rate cycles, you can do the same with your own interest rates. Banks are in the business of attracting new customers and retaining existing ones. You can use these two traits to your advantage.

A simple phone call to your current lender to let them know you are about to jump ship for a better rate elsewhere will usually see them offer you a better deal. Do this regularly and you can future proof yourself from RBA rate movements. If you need some help or don’t know where to start, reach out to Zinger Finance. 

 

 

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