No rate cut at June RBA meeting

Last month’s surprise cash rate cut is unlikely to be the last for 2016, according to Finder.com.au, one of Australia’s biggest comparison websites. 

While all 31 experts (100 percent) in the finder.com.au Reserve Bank Survey are forecasting the cash rate will hold at the new historic low of 1.75 percent at the Reserve Bank board meeting tomorrow (7 June 2016), 68 percent (21/31) predict there’s a further cut on the way this year 

Most of these experts (14/31 or 45 percent) are tipping August as the month most likely for a rate cut. Three experts (10 percent) are forecasting September for a rate drop, while four experts (13 percent) think we’ll have to wait until November.  

As for how low the cash rate may drop this cycle, the majority (60 percent) of experts are forecasting it will fall to 1.50 percent, while 12 percent believe there’s scope for the cash rate to cut to even lower than this. 

Bessie Hassan, Money Expert at finder.com.au, says it’s now more important than ever for first home buyers to do their research before entering the market.

“Despite an attractive low rate market, one-third (33 percent) of experts thought that the market pre-GFC was more suitable for first home buyers. Just 10 percent believed the current combination of economic factors in Australia (low interest rates and fluctuating house prices) makes this the best market for first home buyers since the GFC,” says Ms Hassan.

Reasons cited include deteriorating affordability and lack of government stimulus. 

“State governments have different levels of support for first home buyers. Check your state government website to ensure that you’re aware of any grants or concessions that are available to you.”

For example, under the New South Wales First Home - New Home scheme, eligible first home buyers are exempt from transfer duty on new homes valued up to $550,000, while those residing within Tasmania and the Northern Territory do not have any duty concessions available to them.

First home buyers also need to be careful when considering their home loan options, Ms Hassan says. 

“While the cash rate is at a historic low, don’t be enticed by a low advertised rate alone. Make sure you look at the comparison rate on offer, as this is a better reflection of the cost of the loan.  

“Also factor in the features and flexibility of the loan and think about your current and future lifestyle and how these may be impacted financially. For example, if you’re thinking of having children or if you don’t have job security, you may opt for a fixed rate loan for greater peace of mind.  

“There are some fantastic deals out there – for both variable and fixed loans – but you’ve got to make sure you do the groundwork to reap the benefits of a low rate environment.”

Keep in mind, however, that low rates won’t hang around forever, she says. “Two in five experts are predicting a recovery next year, saying a rate rise is in the pipeline beyond 2016.”  

When asked about recent warnings that Australian property market prices could rise by 10 percent by 2020, 35 percent of experts agreed with this prediction. Thirty percent of experts are forecasting a rise of 5 percent by 2020, while 25% predict no change or a drop in house prices between now and then. 

What our experts had to say in the June Reserve Bank Survey: 

Shane Oliver, AMP Capital: "While I expect the RBA to cut the cash rate again this year, not enough will have happened to bring on another move by the June meeting." 

Peter Munckton, Bank of Queensland: "We have had no new information to change RBA's view that 1.75% is the right rate."

Richard Robinson, BIS Shrapnel: "The last cut successfully engineered a fall in the dollar, which the RBA desired. Although inflation is low, deflation is unlikely (oil prices have already risen sharply since January), and the economic growth is sufficient to prevent a marked increase in the unemployment rate. Better to leave some rate cuts for later – when they might need them."

Chris Caton, BT Financial Group: "The Bank may cut again but it is not in a hurry."

Dr Andrew Wilson, Domain Group: "RBA to take a wait and see approach after last month’s cut with data remaining mixed. Inflation critical but bias remains solidly for another cut this year although a near-term rise in US rates may stay the RBA hand." 

Scott Morgan, Greater Bank: "The RBA will wait to see the impact of the most recent cuts. There is no recent economic data that would change the RBA's view." 

Mark Brimble, Griffith University: "While bias remains to easing, the RBA is likely to tread carefully and wait for the reaction to the previous month’s rate cut to emerge and further data in relation to confidence, inflation, lending and capital expenditure prior to easing again."

Mandeep Sodhi, HashChing: "RBA would want to wait till August 2016 to see the flow on effects from rate cut in May 2016. The July 2016 election results will also give some clear directions and would make sense to wait till August 2016. There are no compelling reasons for RBA to change the interest rate in immediate short term. This is a good time for existing homeowners to revisit the interest rate they are getting and negotiate a better rate from existing lender. Home owners do not need to wait for another rate cut in this competitive market where lenders including  big 4 banks are offering home loan interest rates below 4% p.a."

Jason Spencer, homely.com.au: "The Australian economy is looking stronger, global issues are dissipating and the Australian dollar is falling so rates should remain on hold on June 7." 

Shane Garrett, Housing Industry Association: "The RBA will take time to assess the consequences of its May rate cut as well as possible developments in inflation before moving on rates again." 

Paul Bloxham, HSBC: "They just cut last month and, in our view, will want to see the Q2 CPI print before considering a further move."

Michael Witts, ING Bank: "Given low inflation was the driver behind the May decision we would suggest that the RBA will look for further data on this front."

James Boyle, Liberty: "It’s hard to ignore the downgraded inflation forecasts the Board issued earlier in the month, although I still don’t see another cut coming until at least August. This is despite jobs growth and unemployment remaining modest, but steady, and wage growth continuing to slow. The Board will no doubt be monitoring the impacts of the last rate cut on the country’s stronger property markets. Auction clearance rates in Sydney performed strongly on back-to-back weekends in May, while Melbourne is seeing listing numbers similar to the same time as last year. First home buyers and investors are returning to the market with the promise of lower interest rates – and this is improving the outlook for the sector. At the same time Mr Stevens has expressed that there is a bit of flexibility in the RBA’s inflation target, so we’re likely to see the cash rate hold for a few months, despite inflation being low, to see if other improvements come about. Economic recovery abroad in the US and Europe is tipped to be slow and steady over the coming years and I don’t foresee Australia being any different.” 

Grant Harrod, LJ Hooker: "The RBA will now monitor the effect last month's rate cut has on the economy. Lending institutions continue to de-risk the housing market by raising rates to investors, and limiting borrowing by non-resident buyers. This is resulting in price growth moderating and also allows the RBA to cut rates further, later in the year, as needed."

Stephen Koukoulas, Market Economics: "Economy doing reasonably well – no need for further monetary policy stimulus."

John Caelli , ME: "Having just cut, the RBA will likely hold until August to assess CPI figures before cutting again to confirm their initial assessment. The RBA continue to target inflation within a 2 to 3 percent band over the longer term." 

Mark Crosby, Melbourne Business School: "Having just cut, and with the US likely to raise there is no compelling reason to cut despite low inflation numbers."

Effie Zahos, Money Magazine: "The next inflation report isn't due until July 27 so it could be a case of hold steady until August." 

Emily Dabbs, Moody's Analytics: "The central bank will likely wait to see if the May rate cut has bolstered domestic demand and put upward pressure on inflation. Further rate cuts are likely down the track." 

Jessica Darnbrough, Mortgage Choice: "There are a couple of reasons why the Reserve Bank may choose to leave the official cash rate on hold this month. In the first instance, unemployment remains low, sitting at 5.7%. Secondly, consumer sentiment has improved significantly over the last month - both of which are positive signs for the broader economy.”

Christopher Schade, MyState Bank: "There's no urgent need to deliver another cut to the Australian economy with the Australian dollar weaker, the economy going OK and May's cut requiring some time to work through the economy. It is more likely the RBA will take some time to see how the Australian economy and global conditions develop over the coming months before making any further changes to the cash rate."

Saul Eslake, Independent Economist and Financial Commentator: "They have responded to the lower-than-expected CPI, the currency has since fallen quite a lot, their other forecasts for economic growth and unemployment haven't changed, no need to lower rates again."

Alan Oster, NAB: "Too early to judge inflation and non mining outlook."

Jonathan Chancellor, Property Observer: "The last move is enough." 

Matthew Peter, QIC: "Having cut in May, the RBA will await the next read of inflation in July before deciding whether to cut another 25 basis points." 

Noel Whittaker, QUT: "[The RBA are] awaiting the outcome of last cut" 

Angus Raine, Raine & Horne: "The RBA made a big call in dropping interest rates last month, and with the Federal Election on the horizon, I don't expect any movement this month." 

Nathan McMullen, RAMS: "Further assessment of impact of recent monetary easing required."

Janu Chan, St.George Bank: "The RBA will choose to wait a while after the decision to cut rates at its last meeting. "

Scott Pape, The Barefoot Investor: "The cuts are coming… just not this month."