RBA cash rate target announcement – February 2015

Image: Property Observer

Image: Property Observer

The RBA has started the new year with a rate cut, lifting confidence for Australia.

As a result of this afternoon’s meeting at 2:30pm AEST, the Reserve Bank of Australia (RBA) has decided to cut the official cash rate to its new, recorded, lowest of 2.25%.

Two out of our 30 finder.com.au experts had predicted this correctly, only 6% of our total. This is also the first time since August 2013 where we’ve seen some of our experts expect the cash rate to move.

Interestingly, almost all of our experts (24 out of 30) have changed their forecast for when they think the next cash rate move will be. The majority, about 60% are forecasting a cash rate change this year.

Compared to last month, just three panelists were expecting the cash rate to move in the first quarter of 2015.

The rate cut comes as a surprise for most of our experts, as most had predicted rates to be held steady due to the period of stability in December.

Click here to see more expert predictions.

What were the economic indicators?

Strong data for jobs and building approvals have also strengthened the economy and softened inflation indicators.

A weaker Australian dollar and reduced oil prices have also contributed to the argument that rates will stay on hold.

‘Stronger than expected unemployment figures, a softer Australian dollar and falling oil prices have all combined to provide the RBA with enough breathing room to hold rates steady,’ says Grant Harrod, Chief Executive Officer at LJ Hooker.

‘Keeping the cash rate stable is expected to see demand for property remain elevated, as buyers continue to take advantage of the cheap mortgages on offer. That being said, property price growth will vary across markets, depending on affordability barriers and the strength of their local economies.’

However, other experts have actually urged the central bank to take action to maximise the potential boost to consumer confidence.

In 2014, the RBA pledged to prepare the market for a potential change, after 18 months of unchanged cash rates. Financial market betting also predicts that traders are less concerned about the preparation.

Former RBA governor, Bernie Fraser, also mentioned that low inflation had given a window for the RBA to start cutting rates.

Some of our other finder.com.au experts had supporting ideas, stating that a rate cut in February would be a better placed decision compared to March.

‘We continue to believe that the February rate cut is the most likely scenario,’ says Bill Evans, Chief Economist of Westpac.

‘With markets now settling on the strong likelihood of a March move we see February as a much more attractive option for the RBA.’

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What does the rate cut mean for my home loan?

‘While it’s unclear which direction the cash rate will move, it’s very likely that we will see some movements this year,’ claims finder.com.au Money Expert, Michelle Hutchison.

‘With many of the experts citing factors including falling oil prices and the Australian dollar, lower consumer confidence and an uncertain unemployment outlook.’

‘The housing market was also a big concern for many of the experts, as they fear that lower interest rates will push up property prices further. CoreLogic RP Data Home Value Index shows capital combined city home values rose by 7.9 percent last year, with a median dwelling price of $575,000.’

‘Regardless of the direction, whether you’re a saver or a borrower you need to work harder this year for bigger returns on your savings and reduce your debts.’
Make bigger returns easier by getting the interest rate you deserve.

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Shirley Liu

Shirley Liu is a program manager at finder, formerly the publisher for Banking and Investments. She is passionate about helping people make an informed decision, save money and find the best deal for their needs.

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