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RBA surprises with latest cash rate decision

December 7, 2016 Financial No Comments Email Email

At its last Board meeting for 2016, the Reserve Bank of Australia announced that it would once again leave the cash rate on hold.Today’s decision marks the fourth consecutive month that the Reserve Bank has left the cash rate untouched at 1.5%.

Speaking about the decision, Mortgage Choice chief executive officer John Flavell said he wasn’t surprised to see rates left untouched.

“When you look at the latest economic data, there was no reason for the Reserve Bank to change its current stance on monetary policy,” he said.

unnamed-16“Consumer sentiment fell slightly last month, while property prices and business sentiment both improved.

“According to the Westpac Melbourne Consumer Sentiment Index, confidence fell 1.1% in November to 101.3.  Meanwhile, property prices across the combined capital cities rose 0.2% throughout November, taking property prices 9.3% higher over the last 12 months. At the same time, data from National Australia Bank showed business sentiment remains relatively robust.

“When you take all of this data into consideration, there really was no reason for the Reserve Bank to alter the current monetary policy setting.”

But while the Reserve Bank decided to leave the cash rate on hold in December, Mr Flavell said rate increases were now “just around the corner”.

“There is growing speculation that the United States’ Federal Reserve will lift the official cash rate at its next Board meeting on December 14,” he said.

“If this happens, we could see the Reserve Bank follow suit and lift rates as early as February 2017.”

Mr Flavell said increases in long term bond rates further supported the theory that interest rates could soon rise.

“If people have been waiting for the bottom of the rate cycle, it may well have already passed,” he said.

“In the last few weeks, we have started to see many of Australia’s lenders lift the interest rates charged across their suite of fixed rate products. This movement would suggest we have hit the bottom of the rate cycle, and are now at the point where rates will soon rise.

“Of course, even if rates do rise in the near future, it is important borrowers do not panic.”

Mr Flavell said it was important for borrowers to remember that interest rates remain at all-time lows and there are still plenty of great deals available in the market.

“Anyone who is concerned about the future of rates could consider fixing part or all of their mortgage.

“That said, I would encourage anyone thinking of reviewing their home loan to speak to a professional mortgage broker.”

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