The RBA Holds – What can we expect from here?

The RBA board has elected to keep the official cash rate on hold at 2.50% p.a.. This was a widely expected decision.

What is not so widely known is that the RBA is still leaning toward a cut rather than a rise.

The bias toward a cut is due to three key factors:

1. increasing unemployment rates (low rates theoretically stimulate the economy and employment)
2. relatively low inflation rates (normally low rates generate higher inflation) and
3. the stubbornly high Australian dollar (low rates should act as a disincentive to buy the Aussie dollar and drive up its value) .

As you can see from the chart below, the ASX futures market is not expecting any change to the cash rate over the next 12 months.

The purple line in our chart below shows that variable home loan rates are reflective of the stable RBA cash rate. There has been little change over the last 5 months.

You will however note that both types of fixed rates have slightly increased over the last 2 months. Having said that, they are both still at historically low levels.

As always, please give us a call if you would like a mortgage review.

There are a number of highly competitive offers available out there. Specials abound.

Some banks are even happy to pay your refinance costs from the outgoing bank. Competition is alive and well.

Michael Daniels, B.Com