RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attemp...
The Reserve Bank of Australia has announced the official cash rate for August following its monthly board meeting.
The RBA has held the cash rate at a record low of 1.5 per cent, a move predicted by most industry pundits amid mixed economic conditions.
All surveyed respondents on finder.com.au’s panel of industry pundits, and 95.5 per cent of the 76 brokers surveyed by mortgage marketplace HashChing, predicted the central bank’s verdict.
Economist at AMP Capital Shane Oliver observed: “Growth has picked up a bit and the RBA is optimistic, but inflation and wages remain too low, property prices are falling in Sydney and Melbourne, the housing construction cycle has peaked and uncertainty remains around the outlook for consumer spending. So, it’s way too early to hike, but it’s hard to mount a case for a cut either right now. So, best to remain on hold.”
Mortgage Choice’s head of corporate affairs, Jacqueline Dearle, echoed Mr Oliver’s sentiment, but she also pointed to tighter lending standards.
“[Despite] good global economic growth, the domestic economy is below expectations, with wages and inflation likely to remain low,” Ms Dearle said.
“New tightened lending standards and increased scrutiny around borrower living expenses, coupled with cooling property prices, will also play a factor in the RBA’s decisions to hold.”
Managing director of 1300HomeLoan John Kolenda, who also predicted a rate hold, claimed that the economy would need to improve significantly for the RBA to consider a rate hike.
“The circumstances which have prompted the RBA to stay on the interest rate sidelines for a record-breaking two years see no signs of change,” Mr Kolenda said.
“There would need to be a dramatic improvement in the economy for the central bank to lift the cash rate, and it is also aware of the potential negative impact this will have on consumers.”
Mr Kolenda also made reference to an increasingly complex mortgage market, out-of-cycle rate increases from several non-major lenders and scrutiny from the financial services royal commission.
“Despite the cash rate being maintained at record lows, this is a very confusing and challenging time for borrowers,” the MD added.
“Cost of funding issues have forced some lenders to increase the rates of some home loan products by more than 30 basis points, while other lenders wary of the scrutiny of the Hayne royal commission are playing a wait-and-see game.”
CoreLogic’s head of research, Tim Lawless, commented: “While the cash rate has remained stable, mortgage rates have been tweaked, the extent to which depends on the borrower type and loan product. Over the same period of cash rate stability, the average standard variable mortgage rate has actually reduced by 5 basis points for owner-occupiers and increased by 30 basis points for investors. Three-year fixed rates for investors have increased by 10 basis points and discounted variable rates are up by 40 basis points for investment loans.
“Additional mortgage rate premiums are payable for borrowers who aren’t paying down their principal. Clearly, the stability in the cash rate hides a deepening complexity in mortgage products brought about by the heightened level of regulation and focus from both lenders and policymakers on improving credit quality.”
Paul Dales from Capital Economics added that credit policy and pricing changes from lenders would prolong cash rate inertia.
“The RBA is increasingly worried that financial conditions will be tightened by banks raising their mortgage rates and using stricter credit criteria, so it will keep interest rates at 1.5 per cent so as not to make things worse,” Mr Dales said.
Despite also predicting a hold, economist at Market Economics Stephen Koukoulas urged the central bank to cut rates.
“The RBA will hold rates because it continues to place a higher priority on reducing house prices than meeting its inflation target and tackling the slack in the labour market,” Mr Koukoulas said. “It should be cutting interest rates.”