11 months and still no change to the cash rate

July 04, 2017

For the 11th consecutive month, the Reserve Bank of Australia has decided to leave the official cash rate on hold at 1.5%.

Mortgage Choice chief executive officer John Flavell said the latest economic data gave the Board no reason to adjust their current monetary policy setting.

“Each cash rate decision by the Reserve Bank of Australia is a delicate balancing act,” he said.

“The Board have to look at all of the economic data – both locally and globally – and then make their cash rate decision based off that data.

“And, over the past month, the economic data would suggest that the Australian economy is tracking along quite nicely at the moment. Property values bounced slightly higher in June, while the unemployment rate fell even further.

“In addition, business growth remains anaemic, while consumer sentiment remains relatively sluggish.”

According to the latest Westpac Melbourne Institute Index of Consumer Sentiment, confidence slid 1.8% throughout June.

Increased pressures on family finances combined with renewed concerns about the economic outlook ultimately drove the latest drop in consumer sentiment.

But while confidence has deteriorated, property values are, once again, on the rise.

The latest data from CoreLogic found property values across the combined capital cities rose 1.8% throughout the month of June, taking the median dwelling value to $635,000.

And the good news didn't just begin and stop with the property market, with data from the Australian Bureau of Statistics showing that the unemployment rate actually fell from 5.7% in April to 5.5% in May.

“When you look at all of these data points together, it is fair to assume that the Australian economy continues to perform relatively well, providing the Reserve Bank with all the incentive it needed in order to leave the cash rate on hold once more,” Mr Flavell said.

“Looking ahead, I wouldn't be surprised to see the Reserve Bank continue to leave the official cash rate on hold for several months at least.”

But while the cash rate remains untouched at 1.5%, Australia's lenders continue to tweak their pricing and policy.

“In the last week alone, we have seen a number of the major lenders increase their interest only pricing,” Mr Flavell said.

“I would not be surprised to see the price gap between interest only loans and principal and interest loans widen to approximately 80 basis points.

“Anyone in an interest only loan should take the time to look at their situation and make sure they are still in the right product for their needs.”