Economic uncertainty gives RBA reason to hold

July 05, 2016

Uncertainty at a local and global level has encouraged the Reserve Bank of Australia to leave the official cash rate on hold.

Mortgage Choice chief executive officer John Flavell said England's decision to leave the European Union combined with ongoing uncertainty around Australia's next government had provided the Board with the incentive they needed to leave the cash rate untouched at 1.75%.

“Even though Australia's federal election happened days ago, we are still yet to find out who has won,” he said.

“This, combined with the ongoing global economic fallout associated with the Brexit result, has created a lot of market uncertainty at a global and local level.

“Looking ahead, these two events are likely to have a negative impact on consumer confidence – something the Reserve Bank would be acutely aware of.

“For these reasons, it wasn't surprising to see the Reserve Bank leave the official cash rate on hold today. I believe the Board will wait to see what impact recent events have on consumer sentiment and the broader Australian economy before making any changes to the official cash rate.”

But while Mr Flavell said he wasn't surprised to see the cash rate left on hold at today's Board meeting, he argued future rate cuts could not be ruled out.

“Depending on what the end result of the federal election is and what impact it has on consumer confidence as well as other key economic metrics, we may see the Reserve Bank of Australia cut the cash rate at least once more this calendar year,” he said.

“The Reserve Bank will also be keen to see what the next round of inflation data reveals. As we saw in May, a poor inflation result can encourage the Reserve Bank to cut the cash rate.

“Regardless of what the Reserve Bank decides to do in the future, the fact remains that interest rates now sit at historical lows – making the cost of borrowing more affordable than ever before.”

For those thinking of buying property in the not-too-distant future, Mr Flavell said now was a great time to get onto the property ladder.

“For those with a mortgage who haven't reviewed their interest rate in several years, now is also the perfect time to get a home loan health check to ensure you are still in the right product for your needs,” he said.