RBA cash rate target announcement – September 2014

In a predictable move, the RBA has decided this afternoon to hold the cash rate.

Cash rate decision

The central bank’s decision means the official cash rate will stay at 2.5% - the lowest it’s been since 1959.

All of the 25 experts finder.com.au interviewed saw the cash rate being held this month as the RBA remains in “wait and see mode”.

Many also agreed that the RBA would be unlikely to cut rates due to the period of stability.
“More fundamentally, the outlook for the economy has not significantly changed since the last meeting. Yes, unemployment spiked in July but this looks more like a statistical aberration” says Dr. Shane Oliver from AMP.

“Meanwhile domestic activity indicators suggest that the economy is continuing to transition to more balanced growth with less reliance on mining investment but the pace of underlying pace of growth still looks sub-par and the AUD remains too high. So no need to cut and no need to tighten.”

The economists finder.com.au spoke to, as well as other economists and business commentators speaking to the media recently, said there may be another rate rise later in mid 2015.

“The Feds will likely have started to raise rates and the Australian economy should be on a firmer footing. Not as high as it has been in the past” says Dr. Oliver.

While there is still some disagreement as to exactly when the RBA will start to hike rates, it seems that early to mid 2015 would be the prime time.

“The RBA repeats its mantra about a period of stability in interest rates at every opportunity” says Michael Blythe, Chief Economist for the Commonwealth bank of Australia.

“Nevertheless, the case for a rate rise is building and we expect the start of a modest tightening cycle from Feb 2015 that ultimately takes the cash rate to our estimate of ‘neutral’ policy of 3.50%.”

The Minutes from last month's board meeting, where the cash rate was maintained at 2.50% seemed to telegraph this month's decision to hold saying "... growth in Australia's major trading partners was expected to be a bit above its long-run average pace in both 2014 and 2015, even though growth appeared to have eased in the June quarter".

What does the anticipated future rate rise mean to homeowners?

Let’s assume that the cash rate rises by 10 basis points (by 0.10%) and the banks pass on this rate rise. The effects on your repayments on a variable rate mortgage can be seen below. With a 0.1% increase, Loan 2 costs $8,723 more.

Loan 1

Loan 2

Interest rate



Loan amount



Loan term

30 years

30 years

Total payments


$890, 580

Saving of:


So is now the right time to fix your home loan?

“Chances are, if you know five people who took out a home loan this year, one of them fixed their rate, which is higher than the past five years” says Michelle Hutchison, spokesperson at finder.com.au.

“Fixed rates are currently good value because they are in line with – and many are lower than – variable home loan rates. Usually, fixed rates are higher so it’s not surprising to see many borrowers securing a fixed rate.”

“It's a great idea to fix your home loan rate if your financial situation is likely to change in the next few years such as starting a family, which will mean less income from time off work. But if you think variable rates could fall further you may miss out on the savings by locking in your rate. This is the gamble that borrowers take when choosing a fixed or variable rate.”

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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