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 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 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.