Cash rate left on hold at 2.50%
In a move that was predicted by all 20 experts surveyed by finder.com.au, the Reserve Bank has left the cash rate on hold at 2.50% in their August meeting.
According to the Reserve Bank governor Glenn Stevens, "In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."
This marks the one year anniversary of the RBA’s much touted “period of stability” for interest rates, with many experts surveyed citing the RBA’s clear indication of their preference for a ‘wait and see’ policy as the reasoning behind their correct prediction.
Shane Oliver from AMP said that “Recent comments from the RBA Governor Glenn Stevens is clearly signalling that rates will stay on hold.”
His sentiments were along the same line as Alan Oster from NAB, who said that “The Reserve Bank will do nothing at this meeting. They're basically sitting and waiting to see what happens.” Mr Oster went on to say that, “They're starting to get a bit worried that their rates haven't got enough traction to offset what's been happening in mining investment.”
Other causes for the cash rate being left on hold were cited by experts such as David Bassanese from BetaShares – “The Economic Outlook is mixed, with soft growth yet stubborn price pressures despite weak wage growth.”
Nick Hutley at Urbis spoke about business and consumer confidence, saying “Employment is making small but steady improvements, business confidence is picking up and inflation is trending higher. However, consumers still remain a little wary of the impact of the Federal Budget and mining investment is coming off increasingly quickly.”
The forecasted rate change is starting to become clearer, with 17 of the 20 experts surveyed expecting the cash rate to rise in 2015. Although, these experts could not agree on exactly when the RBA would lift rates—with seven predicting the first half of the year, six predicting the second half, three not providing definitive answers and one preferring not to comment on when the cash rate would rise.
Forecast of the month - Jonathan Chancellor, Property Observer
The August meeting will see no change, so a year since the last cut to 2.50%. The RBA simply likes to let the economy look after itself as much as possible. The last lengthy period of stability was between late 2010 and late 2011 when rates sat at 4.75%.
We probably won't see any shift until 2015 when it will most likely be upwards. It is hard to see rates going back to as high as it has been in the recent past, given international forces at play.
But despite home borrowers being ahead, many recent buyers will begin hurting very quickly if they haven't factored in the prospect of higher rates.
What does this mean for borrowers?
Michelle Hutchison, Money Expert at finder.com.au, said borrowers can expect a ‘new normal’ level of interest rates which will likely be around 4%.
“Most of our experts believe the cash rate won’t reach the historical average of about 5%, but rather reach around 4%, which is 150 basis points above the current cash rate of 2.50%. And with 17 out of the 20 respondents betting on rates to start their way up from next year, borrowers need to ensure they can afford the extra cost.”
With interest rate hikes somewhere in the future, Mrs Hutchison urged borrowers to take advantage of the current rates and compare their loan options.