How often does the Reserve Bank change rates two months in a row?
All eyes are on the June number.
Last month's cutting of the official cash rate by the Reserve Bank came as something of a surprise, but most banks followed up by cutting the rates they charged to mortgage holders and dropping the interest paid on savings accounts. So now the question becomes: will those rates be chopped again at the next official meeting, which is on June 7? And what will the banks do if that happens?
I'll be very curious to see what the economists surveyed in finder's monthly RBA survey predict. We've already seen CommBank suggest we'll see at least one more cut this year.
One interesting indicator is the RBA's past behaviour. Does it typically change rates twice in a row, or take a more measured course?
Below, you can see the history of rate changes back to August 1990. (Yes, the official rate really was 14% back then.)
All those flat lines suggest that the rate stays the same an awful lot of the time. Indeed, in the 288 months that are represented in the chart above, the rate has changed only 68 times. These are the occasions when the rate has changed two months in a row:
- June 2012 and May 2012
- December 2011 and November 2011
- May 2010, April 2010 and March 2010
- December 2009, November 2009 and October 2009
- March 2008 and February 2008
- December 2003 and November 2003
- June 2002 and May 2002
- April 2001, March 2001 and February 2001
- May 2000 and April 2000
- December 1996 and November 1996
- May 1991 and April 1991
So past history suggests there's a much better chance that the RBA won't change rates two months in a row. It's more likely since 2008 than it was before then, but not changing the rate in consecutive months is still a much more common occurrence.
That said, there is a precedent for a double-change after a long period of unchanged rates similar to the one we've just experienced, where the rate remained the same for 10 consecutive meetings. The rate changes in November 2011 and December 2011 also followed a 10-month spell of unchanged numbers.
The lessons of the past don't always apply neatly to the future. We're in election mode now, and while the RBA is a neutral body, it will be factoring some "don't scare the horses" thinking into its decision.
And whatever it decides, the effect on the actual rates consumers will pay is more complicated. During the long dry spell for rates during 2015 and 2016, many banks started adjusting their rates off-cycle. The connection between the official rate and what you'll have to cough up is not as strong as it once was.
So while most banks seemed happy to pass on the cut this time around (after a cash-generating delay of a few days), that might not be the case come June. All of which means that shopping around for the best overall deal remains your best defence.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.