RBA holds cash rate at July 2018 meeting

Adam Smith 3 July 2018 NEWS

Hand with numbers on screenThe Reserve Bank has remained on the sidelines, but lenders are beginning to move rates upward.

The Reserve Bank of Australia left the official cash rate on hold at 1.50% at its July meeting today. The result is the 21st consecutive meeting in which the RBA has chosen not to move on rates.

The decision was widely expected. 100% of the experts polled in the monthly finder.com.au Reserve Bank Survey correctly tipped the cash rate hold.

CoreLogic research director Tim Lawless said the period of inactivity was likely to continue into late next year.

"Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range. With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated. It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019," Lawless said.

However, this doesn't mean the home loan market is set to remain static, Lawless indicated.

"Focus is now moving to mortgage rates, where we are increasingly seeing upwards pressure from overseas funding costs. Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products," Lawless said.

While larger banks such as the big four face less funding pressure, Lawless said funding costs are beginning to rise for the majors as well. But he pointed to the average standard variable rate of 5.20%, which he said was 120 basis points below the decade average of 6.40%.

"Borrowers, particularly owner occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term," Lawless said.

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