Steady as she goes, RBA leaves rates on hold

May 02, 2017

For the ninth consecutive month, the Reserve Bank of Australia has made the decision to leave the cash rate untouched at the historical low of 1.5%.

Mortgage Choice chief executive officer John Flavell said a raft of fairly positive economic data meant the Board had no reason to change it stance on monetary policy.

“At present, business conditions remain robust, the property market continues to go from strength to strength, headline inflation is edging higher, and unemployment is low,” he said.

“When you combine all of these elements, it is little wonder why the Reserve Bank chose to leave the cash rate on hold once more.”

According to National Australia Bank's latest Monthly Business Survey, business conditions jumped 5 points last month, taking it to its highest level since the Global Financial Crisis.

Furthermore, data from CoreLogic found property values climbed 0.1% across the combined capital cities over the month of April.

Melbourne, Brisbane and Adelaide all performed strongly, with the capital cities enjoying property price growth of 0.5%, 0.6% and 0.8% respectively.

Meanwhile, headline inflation edged 0.5% higher over the first quarter of the year, taking the annualised rate of growth to 2.1% - perfectly within the Reserve Bank's target band range.

Finally, data from the Australian Bureau of Statistics found the unemployment rate remains steady at 5.9%.

“It is for all of these reasons and more that the Reserve Bank decided to leave the cash rate on hold for yet another month,” Mr Flavell said.

“But while the Reserve Bank has left the cash rate on hold once again, that is not to say there hasn't been a fair bit of movement in home loan interest rates.

“Over the last couple of months, there has been a lot of volatility in the global markets, which has resulted in increased funding costs for many of Australia's lenders, which has led to higher home loan interest rates across the board.”

In addition to the increased funding costs, Mr Flavell said a raft of changes by the Australian Prudential Regulation Authority (APRA) had affected the availability and cost of credit in some instances.

“At the end of March, the prudential regulator forced Australia's lenders to limit their level of interest only lending to 30% of all new residential home loans.

“In response, Australia's lenders started making changes to their pricing and policy. While some tweaked their policy, making it harder for certain types of borrowers to qualify for this type of loan, other lenders adjusted their pricing, lifting their interest-only home loan rates by as much as 35 basis points.”

Mr Flavell said the recent raft of policy and pricing changes by Australia's lenders has made the home loan market more complex than ever before.

“There is a lot of movement in the home loan market at the moment. With that in mind, there really has never been a better time for borrowers to speak to their lender or mortgage broker to make sure they are still in the right product and most competitive rate for their needs.

“All lenders are different. While some are limiting their exposure to investors, others are opening the doors to this type of business.

“Anyone who is thinking about buying property, refinancing, renovating or upgrading, should take the time to speak to their local mortgage professional. They know what is happening in the market and can make sure you are in the right solution for your needs.”