Reserve Bank holds fire in May 2017 cash rate call

Adam Smith 2 May 2017 NEWS

RBA May 2017 news image

The Reserve Bank has left the cash rate on hold again, while lenders continue to push rates higher.

At its board meeting today, the Reserve Bank of Australia left the official cash rate on hold at 1.50%. The cash rate has now remained untouched since August last year.

The move was largely anticipated, with all 33 of the experts surveyed in finder.com.au’s Monthly RBA Cash Rate Survey predicting the hold. CoreLogic research head Tim Lawless said the hold came in spite of inflation moving back into the RBA’s 2-3% target band for the first time since the September 2014 quarter.

“However inflation increases were driven largely by forces that are exogenous to domestic demand, including a 6% increase in the price of fuel, and a 2.5% administered increase in electricity prices. Coupled with continued low wage growth, this indicates that private and household demand may still be weak despite the higher inflation figures, warranting the maintenance of a low cash rate,” Lawless said.

While the Reserve Bank has left the cash rate on hold, lenders have continued to lift home loan interest rates.

“According to the latest RBA data, the average discounted variable mortgage rate for investor loans has shifted 25 basis points higher since August last year, which is equivalent to a typical RBA rate hike. The three year fixed rate for investor loans is 30 basis points higher and discounted variable rates for owner occupiers have also shifted 10 basis points higher since August,” Lawless said.

Lawless said rate rises, combined with moves by regulators to curb investment lending, would be likely to cool housing demand.

“A housing market slowdown would relieve one of the key concerns the RBA has relating to financial stability, however the Reserve Bank would likely be seeking confirmation of a slowdown from a longer trend of slower capital gains and lower credit growth,” he said.

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