RBA cash rate holds signals it is still gauging impact of previous rate cuts: RateCity

The decision by the RBA to leave the cash rate on hold today at 3.5% reflects the need for the central bank to wait and measure the impact of the rate cuts in May and June, according to mortgage comparison website Ratecity.com.au.

“We’re not surprised that the Reserve Bank has left the cash rate on hold today at 3.5%,” says Michelle Hutchison, spokesperson for Ratecity.com.au 

“After two consecutive cash rate drops totalling 75 basis points in the past two months, we haven’t seen the RBA move so dramatically for almost three years. 

“The RBA needs time to allow the previous rate cuts to flow through to the economy and measure their impact. The Reserve Bank still has plenty of room to drop the cash rate if economic conditions deteriorate locally or overseas,” says Hutchison. 

She says most borrowers should be aiming for a home loan interest rate of below 6%, especially they have a 20% deposit or 20% plus equity. 

“Lending in Australia is still relatively slow and many lenders are keen to negotiate with borrowers to secure customers,” she says. 

RP Data’s Tim Lawless says it is difficult to gauge how much of the 1% rise in  capital city dwelling recorded by the RP Data-Rismark Home Value Indices can be attributed to lower interest rates. 

“However it is reasonable to assume that improved housing affordability on the back of lower mortgage rates and lower housing values has been a factor in the positive month on month result. 

"The Reserve Bank is likely to be watching conditions across the housing market quite closely as they walk a fine line of monetary policy settings trying to balance an improvement in consumer sentiment and willingness to spend while also wanting to avoid stimulating house prices. Despite the June rise, capital city home values remain 6.5% lower than their October 2010 peak,” Lawless says. 

Mortgage Choice spokesperson Belinda Williamson says while many borrowers were hoping for a third consecutive monthly rate cut, the data coming out of Australia is strong compared with most world economies. 

“We are approaching near full employment, our banking system is robust, inflation is controlled, interest rates are at historically low levels and borrowers are paying down debts. The contrast with many European nations could not be starker. 

“Borrowers should see the steady cash rate as a vote of confidence in favour of our economy and see this as a prime time to take control of their mortgage to help lessen any hip pocket pain,” she says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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