Despite the rate pause, the RBA was not short of reasons to reduce rates today, amid further signs the economy is deteriorating.
THE RBA has kept rates steady, despite further signs the economy is deteriorating.
The central bank’s decision to hold the cash rate at 2.25 per cent after last month’s cut is likely to be based on fears that a further discount would add fuel to property prices.
The RBA debated the problem of skyrocketing house prices on February 3, according to minutes of their last meeting, before deciding to cut rates for the first time in more than a year and a half. The nine-member board was divided on the discount.
With the country’s home prices already at record-high levels, there are signs of momentum following last month’s surprise cut. Auction clearance rates in some major housing markets have been nearing 90 per cent in recent weeks. Nationally, home prices have climbed 22 per cent since mid-2012.
RBA: Central bank’s March decision
There are already signs of auction momentum following last month’s surprise cut.Source:Getty Images
ROOM TO MOVE ON RATES
However, the RBA was not short of reasons to reduce rates today. Unemployment has hit a 12-year high of 6.4 per cent, business investment expectations have reached shockingly weak levels and cheap petrol is expected to push inflation below the RBA’s two-to-three per cent target band.
On top of that, the Australian dollar has been edging higher.
The Commonwealth Bank, ANZ, Westpac and AMP Capital were among those lenders forecasting a March cut, with the general consensus being the RBA tends to deliver cuts in pairs.
“Usually when they cut rates, they don’t just do one out of the blue and stop. It’s normally two,” Commonwealth Bank senior economist Michael Workman said.
Finder money expert Michelle Hutchison said today’s cash rate pause is good news for savers, who have been hit hard with cuts to their returns for over three years.
“But it’s not expected to last long for them, with the majority of experts forecasting another rate reduction by June this year,” Ms Hutchison said.
RATE REPRIEVE AHEAD
Financial markets are now pricing in rates to hit 1.75 per cent by the end of the year.
AMP chief economist Shane Oliver said an RBA cut below 2 per cent is likely to result in home loan interest rates falling to less than 4 per cent.
“It wouldn’t surprise me if we saw the cash rate at 1.5 or 1.75 per cent,’’ Mr Oliver said.
Aussie Home Loan executive chairman John Symond also expects rates to continue on their downward trend in the coming months.
“I think there’s probably another two rate cuts left,’’ he said.
“I would hope and pray it doesn’t go any further than that because that would signal that our economy is really heading the wrong way.”
The Australian dollar’s movement, and how low the RBA could ultimately cut the cash rate over the next few months, may depend on when the US Federal Reserve begins hiking its interest rates.