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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