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RBA rate announcement

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The Reserve Bank of Australia has announced the outcome of its monthly board meeting.

The official cash rate has been left on hold at 2.5 per cent. Today’s announcement marks one year since the RBA altered the cash rate – it last moved in August 2013 when it dropped 25 basis points from 2.75 per cent.

The decision by the RBA was largely unsurprising, with a survey by comparison website finder.com.au revealing that 21 leading economists and experts all expected no movement in the cash rate today.

Ahead of the announcement today, Alan Oster, group chief economist of NAB said the next cash rate movement wouldn’t come until the first quarter of 2015.

“The Reserve Bank will do nothing at this meeting,” he said. “They’re basically sitting and waiting to see what happens in relation to the slowdown that mining investing is causing to the domestic economy, and seeing whether that’s going to be offset by low interest rates – ie. consumers spending more, housing picking up and maybe business investment picking up.”

AMP Capital’s chief economist Shane Oliver also accurately predicted the outcome of today’s board meeting and said “not enough has happened to justify moving rates”.

“The economic data has been somewhat mixed. There have been good housing indicators, some solidness in retail rates, but nothing dramatic, and certainly not enough to signal a change.”

Despite today’s announcement, finder.com.au’s money expert Michelle Hutchison said within the next year, elevated rates could become the new norm.

“Most of our experts believe the cash rate won’t reach the historical average of about five per cent, but rather reach around four per cent, which is 150 basis points above the current cash rate of 2.5 per cent,” she said.

She urged investors to start considering how rate rises would impact their portfolio.

“Interest rate hikes are on the horizon and look set to start rising very soon, so borrowers need to start preparing now before it’s too late,” she said.

She suggested a borrower on a variable rate with a $300,000 mortgage would need to find an extra $300 per month for repayments if rates rose by 150 basis points.

“Fixed home loan rates are among the lowest levels we’ve ever seen so if you are concerned about rising rates and higher repayments, it could be worthwhile locking in before these potential savings are gone,” she said.

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