RBA leaves rates on hold and dollar rises
The Reserve Bank has surprised and disappointed home loan borrowers by leaving the cash rate unchanged at 4.25%.
The Australian Dollar reacted immediately rising to above $1.08 having opened at under $1.07. It has fallen back slightly since then trading around $1.078.
A 0.25% rate cut would have reduced mortgage repayments by around $50 per month for those with a $300,000 mortgage, though lenders were not expected to pass on the full rate cut.
NAB currently has the lowest standard variable rate mortgage at 7.22%.
ANZ offers a standard variable rate of 7.30% followed by CBA (7.31%) and Westpac (7.36%).
ANZ will make an independent announcement about interest rates on Friday.
The three-day wait for ANZ mortgage holders in February and March is due to the quirks of the calendar month (the RBA meets on the first Tuesday of each calendar month to make its interest rate call) – ANZ borrowers will have to wait 10 days from April onwards.
Bendigo and Adelaide Bank has also indicated that it plans to follow ANZ and move out of step with the RBA, with chief executive Mike Hirst reiterating the point that the official cash rate no longer strongly correlates with banks’ cost of funds.
Prior to the RBA announcement the major banks indicated they were unlikely to pass on the full rate cut putting out statements about increased funding costs.
The decision to leave rates on hold comes as the mining sector booms but others like residential construction and retail continue to struggle.
According to the Australian Industry Group Australian Performance of Construction Index, construction activity contracting for the 20th consecutive month in January led by a slowdown in the building of apartments and commercial buildings.
A rate cut was expected to deliver a boost to housing construction, where the pace of decline eased following the November and December rate cuts. Engineering construction with its strong ties to the resources boom remained the best performing construction sector.
Retail sales declined 0.1% in December according to ABS figures, below consensus with Westpac expecting 0.2% gain over December.