RBA keeps current cash rate at 2.00%
Although many predicted that another cash rate cut was on the cards, several economists correctly predicted that the Reserve Bank of Australia (RBA) would maintain the current cash rate for June 2015.
At today’s meeting, the Board decided to keep the cash rate of 2.00 per cent unchanged.
According to the finder.com.au Reserve Bank Survey, 100 per cent of industry experts (34 respondents) forecast that the RBA would break their trend of easing monetary policy by holding the rate at 2.00 per cent.
However, 68 per cent of these experts believe interest rates will begin to rise in 2016, with some predicting the rate will continue to rise beyond 2016.
Why maintain the cash rate?
With soaring property prices and the recent recovery of commodity prices, the RBA has initiated their “wait and see” strategy by holding the cash rate at 2.00% this month.
As inflation sits comfortably at 1.3 per cent and unemployment drops, the need for a further rate cut has lessened.
It is believed that the RBA has maintained the cash rate so that they can fully assess the impact of the lower cash rate on the economy. In particular, they will wait to observe the influence of a low rate on economic growth, unemployment and investment behaviour in the residential sector.
However, if growth continues in overseas markets such as the US and China, it is probable that the RBA will start tightening monetary policy in the near future.
Interest rates forecast to take a turn
Despite the RBA’s decision to keep the cash rate unchanged, you should start preparing for further rate increases. It is believed that more borrowers will start fixing their home loans in the anticipation of interest rate hikes next year.
The majority of experts (21) predict there will be no cash rate movement for the remainder of this year.
Interestingly, the Associate Professor of Economics at Melbourne Business School, Mark Crosby, forecasts that the cash rate will start rising in the final quarter of 2015.
How high will the cash rate go?
According to the finder.com.au Reserve Bank Survey, industry professionals believe the cash rate will increase to 3.70 per cent, while eight experts are predicting the rate will hit above 4.00 per cent. Two of the survey participants predicted the cash rate would reach as high as 5.00%.
How will this affect me?
Based on the key findings of the finder.com.au Reserve Bank Survey, our money expert Michelle Hutchison said borrowers will begin to lock in fixed home loan rates as a consequence of imminent rate hikes.
"The majority of experts from the Survey (82 percent) are expecting to see more borrowers concerned about rising interest rates and lock in a fixed rate home loan. Of these experts, 21 of which are expecting this will happen this year, while seven don't think more borrowers will fix until next year. There were also four experts who don't think more borrowers will fix at all.
"While it is a good idea to fix your home loan if you're concerned that rates will rise, it's a worry that some experts don't think more borrowers will fix. We're seeing record low numbers of borrowers fixing their home loans and as prices rise and rate hikes on the horizon, some borrowers will be under financial strain if they don't consider fixing while rates are low.”