Find out what it did with its benchmark rate this month
There’s been plenty of commentary pointing to the Reserve Bank of Australia moving sooner rather than later on the cash rate, but the RBA has again kept its powder dry.
The official cash rate remains unchanged at 0.1% following the RBA board’s monthly monetary policy meeting held today. Australia’s central bank hasn’t lifted rates since November 2010.
RBA governor Philip Lowe said the board had decided to maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at 0%.
“It also decided to cease further purchases under the bond purchase program, with the final purchases to take place on 10 February,” Lowe said.
“The Omicron outbreak has affected the economy, but it has not derailed the economic recovery. The Australian economy remains resilient and spending is expected to pick up as case numbers trend lower.”
Lowe said the RBA's central forecast is for GDP growth of around 4.25% over 2022 and 2% over 2023.
“This outlook is supported by household and business balance sheets that are in generally good shape, an upswing in business investment, a large pipeline of construction work and supportive macroeconomic policy settings. The main source of uncertainty continues to be the pandemic.”
Lowe said inflation has picked up more quickly than the RBA had expected, but remains lower than in many other countries.
“The headline CPI inflation rate is 3.5% and is being affected by higher petrol prices, higher prices for newly constructed homes and the disruptions to global supply chains. In underlying terms, inflation is 2.6%.
The RBA forecast is for underlying inflation to increase further in coming quarters to around 3.25%, before declining to around 2.75% per cent over 2023 as the supply-side problems are resolved and consumption patterns normalise.
Mark Middleton (pictured above left) is the head of third-party distribution at Teachers Mutual Bank Limited, one of Australia’s largest customer-owned banking groups. It has a broker network of more than 6,000 and over 225,000 members across four divisions: Teachers Mutual Bank, UniBank, Firefighters Mutual Bank, and Health Professionals Bank.
Middleton said the RBA’s decision to keep the cash rate unchanged was expected.
“I’m not surprised that rates stay on hold, particularly with COVID and the uncertainty there with Omicron,” said Middleton. “We’ve seen the stock market moving around in the last week or two as well – there’s certainly a bit of nervousness.”
“My heart goes out to entertainment, food, even retail businesses that are struggling … historically low rates have been a relief for businesses but it doesn’t counter the decrease in cashflow.”
Middleton said the chances of a rate rise in the longer term are higher.
“We’ve seen the yield curves change however for the longer term forecasts which have reflected through fixed rate increases and continued to be worked into that overall rate for the longer term, probably the three to five year period.”
He said there had been a number of dates suggested for when the RBA would lift rates, including 2024, 2023 and even as soon as August this year.
Middleton said brokers need to consider not just the short-term but have a conversation with their clients about the long term.
“They need to look at what is the right thing to ensure the overall repayment schedule is maintainable and doesn’t impact the pocket of the borrower too much,” he said.
Middleton said a combination of a part-fixed and part-variable loan “probably gives the best of both worlds for the borrower long term”.
Barry Saoud, general manager mortgages and commercial lending at non-bank lender Pepper Money (pictured above right) said while a rise in the official interest rate this year might be speculation for now, many traditional lenders have already begun shifting their fixed interest rates upwards.
“So we’re expecting sharper borrower demand for greater loan options and flexibility, innovative products, and experience in understanding their individual circumstances,” Saoud said.
“This is where Pepper Money is uniquely positioned to help customers from diverse financial backgrounds, empowering them to continue saving, get into the market sooner, strengthening their financial standing, and moving towards their individual financial goals.”
Saoud said as rates begin shifting upwards, there will be a shift in the needs and circumstances of borrowers.
“Brokers will continue to play an important role in educating borrowers on rate movements and helping them to recognise and identify attractive alternative options to suit their goals and circumstances.”
