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Reserve Bank holds cash rate steady, experts predict November cut


6 Oct 2020 | Author: Sue Williams | Source:

The Reserve Bank of Australia has again agreed to hold the official interest rate at the historic low of 0.25 per cent at its monthly meeting – unmoved from late March.

A number of economists had forecast there might be a cut in the cash rate and yield curve targets on Tuesday to help boost the COVID-19-hit economy, but the bank has remained steady.

Now experts predict instead that the bank will assess the measures in the federal budget delivered on the same day before making a change next month instead, with some disappointed by the delay.

“I think it would have been better for the Reserve Bank to cut rates for the simple reason that, by cutting rates on the same day as the federal budget, they would get bigger bang for their buck,” said AMP Capital chief economist Dr Shane Oliver.

“It would have given the impression of another Team Australia event – much like back in March – where we had the two arms of policy working in the same direction. The Reserve Bank has said on numerous occasions that it was considering easing the rate and I think they will now in November, but it would have had a bigger impact coming on the same day as the announcement on stimulus measures in the budget.”

The Reserve Bank board, responsible for formulating monetary policy, could have chosen to cut the rate with the intention of providing more domestic stimulus for an economy which is currently experiencing its biggest contraction since the 1930s.

With the government expected to announce an array of budget measures in its fiscal armoury, like tax cuts and infrastructure spending, some economists believe the two together could give the country its best chance of climbing earlier out of a recession.

“But the Reserve Bank has decided instead to wait until November and see what the government has done with the budget and will then work out the best way it can support the economy, signalling the possibility of lower rates then,” said Alex Joiner, chief economist of IFM Investors.

“Most people expect interest rates will move a little lower then which will assist people from a cash flow perspective in managing their mortgages, making them cheaper and helping others get into the housing market. But will it help business investment and create more jobs?”

With the target cash rate – the market interest rate on overnight funds – already so low, the Reserve Bank seems to want to hold its fire for later.

Tim Reardon, chief economist at the Housing Industry Association, said, “Given all the uncertainty in the economy at the moment, they’ve decided to hold for the moment.

“Interest rates are one of the few levers left, and the cabinet now has to use the tools at its disposal before the Reserve Bank uses its tools. All the interest should now be on the fiscal side, and the only tools that will help are migration and expenditure.”

Sean Langcake, senior economist at BIS Oxford Economics, says a cut in the rate may not have made much difference anyway.

“The major headwind facing the economy is lack of demand so a minor change in the interest rate would be unlikely to have a huge effect on growth momentum. The main game is really the measures that fiscal policy can deliver.

“But the Reserve Bank is keeping its policy settings at a really accommodative level. It’ll be a long time before inflation and unemployment rate are on track so we’ll see no change in policy settings for quite some time.”

NAB Group chief economist Alan Oster is even more blunt about the Reserve Bank’s decision to hold, over its option to cut.

“It really doesn’t matter,” he said. “To be brutally honest, the big thing now is fiscal policy; it isn’t monetary policy. The Reserve Bank is trying to make sure that there’s lots of liquidity out there but it’s not about supply at this point, it’s all about demand.

“The incentive isn’t borrowing because the cash rate could be a few points lower – that’s garbage. The big picture today is the budget. If the Reserve Bank can help, they will, but there’s not much they can do.”

By holding the current rate steady, it means that the Reserve Bank still has some room to move if the situation worsens. If it had cut the rate now, having already indicated that it doesn’t want to enter the uncertain world of negative interest rates, it would have almost exhausted what it could do for the economy in the future.

“Now the Reserve Bank still has levers to pull on the interest rate side,” said Mr Reardon. “They still have tools left in their arsenal.”

And Mr Oster agrees. “The Reserve Bank has already said there won’t be negative rates, so now there’s still something left they can effectively do to help the real economy.”





RBA holds rates at record low and maintain fiscal policy at September meeting

1 September 2020 | Author: Joel Robinson | Source: Property Observer

The RBA continued to hold rates at a record low 0.25 per cent and maintain its current policy settings at its September meeting.

Experts say they have never felt better about housing affordability around the country, according to's RBA Cash Rate Survey of 40 experts and economists.

62 per cent of participants responded with positive sentiment about housing affordability, a record percentage since Finder first started collecting data on it in March 2018.

Graham Cooke, insights manager at Finder, said housing affordability is a two-way street.


“When experts feel good about housing affordability there are two ways to look at it.

“On the one hand, prices are down so those who are ready to buy or who want to negotiate rent are in a good position to do so.

“On the other hand, those who own or are looking to sell, may see that their property isn’t worth what it once was.

“What is certain here is that the drop in prices, rock-bottom rates and increased competition for non-investment buyers combined with government stimulus will likely get a lot of the next generation onto the housing ladder for the first time,” Cooke said.

Finder's Economic Sentiment Tracker gauges experts' confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.

CreditorWatch chief executive Patrick Coghlan says the RBA's decision to hold interest rates was a sensible measure to ensure cash stays in the economy as much as possible.

"This follows last month’s extension of the JobKeeper and JobSeeker schemes that demonstrate the extent to which the government is having to step in and support the economy," Coghlan said.

"However, our concern is that government support, in whatever form, will have to come to an end eventually and when it does, there will be a seismic shock as companies have to fend for themselves or admit defeat. 

CreditorWatch's data showed there was a 15 per cent increase in credit enquiries in the first few weeks of August compared to the July average.

"This is an important indicator that businesses are starting to onboard new customers.

"Whilst we can’t count on green shoots just yet, it's my view that government stimulus packages should be eased off, where possible, to avoid just kicking the can down the road.”




Savers stung by falling rates, despite no likely RBA cut

1 September 2020 | Source: Property Observer

Saving rates have continued to plunge even though the Reserve Bank isn’t expected to cut the cash rate today, says Australian financial comparison website RateCity.

RateCity analysis shows that more than 40 banks cut saving account rates, including CBA, NAB, Macquarie Bank and AMP.

Average ongoing saving rates now sit at 0.59 per cent.

Research director Sally Tindall says complacent savers are earning next to nothing in this low rate environment.

“Seventy-six per cent of all household deposits are held by the big four banks, yet they’re the ones offering some of the lowest ongoing savings rates on the market.”

Westpac is the only big bank bucking the trend, offering an impressive 3 per cent rate for customers aged 18 to 29.

At the same time interest rates have continued to fall, deposits have hit an all-time high, according to the latest APRA statistics.

This means banks don’t need to attract new savers, Tindall says.

“They can’t even afford to offer respectable returns to the customers they’ve got.”

Just last week, Macquarie Bank slashed its introductory rate by 0.50 per cent to 1.50 per cent while AMP terminated its welcome rate altogether.


Introductory rates across the big four banks have dropped by an average of 1.12 per cent while the ongoing savings rate has dropped by 0.09 per cent.

The average cash rate has dropped by 0.75 per cent in the last year for the big four, while the conditional savings rate has dropped to 0.92 per cent.




Coronvirus triggers RBA March cash rate call

03 March 2020 | Cameron Micallef | Source: Real Estate Business

The Reserve Bank of Australia (RBA) has announced its decision on the official cash rate for March amid speculation the fallout from COVID-19 would force the bank to ease monetary policy.

The RBA has announced its fourth rate cut in the past 12 months, slashing an already historically low interest rate to 0.5 per cent.

Today’s announcement follows a reduction to 1.25 per cent in June,  1 per cent in July and 0.75 per cent in October, with the central bank looking to restore market confidence following a 12 per cent reduction in Australian equities in the last seven days.

Before the rate announcement, comparison site Finder surveyed 39 leading economists with 90 per cent believing a rate cut would happen in 2020.

One of the economists who predicted today’s cut, AMP Capital’s Dr Shane Oliver, believes back-to-back disasters are hurting the Australian economy.

“The coronavirus outbreak coming on the back of the bushfires is likely to see the economy go backwards this quarter which in turn is likely to push unemployment up further after the rise to 5.3 per cent seen in January.” 

“Growth should rebound in the March quarter but given the uncertainty around Covid-19 and its impact globally there is much uncertainty around that and given we are so far from full employment and the inflation target the RBA is likely to take cut the cash rate again in the months ahead,” Dr Oliver explained. 

Today’s cut has brought the official cash rate to 0.50 per cent, just one cut from the point where the RBA would consider instituting a quantitative easing program.

The RBA’s reduction is in line with market expectations internationally with it being widely expected for central banks around the world to ease monetary policy.

Bill Nelson, chief economist at the Bank Policy Institute and a former Fed economist, said the Fed and other major central banks, possibly including China’s, could announce coordinated rate cuts by Wednesday morning. The cut would at least be a half-point and perhaps even three-quarters, he said.

“The only way to get a positive market reaction is to deliver more than expected,” he said.




RBA Holds Rates at December Meeting

3 December 2019 | Source: Property Observer

The Reserve Bank of Australia have kept the official cash rate at a record low 0.75 per cent at its December meeting today.

"There are further signs of a turnaround in established housing markets," Lowe said.

"This is especially so in Sydney and Melbourne, but prices in some other markets have also increased recently.

The RBA are waiting to see if their three cuts in 2019 will stimulate the local economy enough that a further cut isn't required.

NAB however are forecasting disappointing GDP growth of 0.3 per cent in Q3, slowing marginally from the growth rates seen in the last two quarters and a continuation of the weakness seen over the past year.

"NAB's expectation is that the RBA will ease rates by a further 25bp in February, with the risk that it will ease a further 0.25 per cent an announce unconventional policy should a material fiscal stimulus fail to materialise,", NAB advise. 

Two-thirds of Finder RBA's Cash Rate Survey, a survey of economists and experts, also predict a cut to 0.5 per cent in February.

Julie Toth of the Australian Industry Group said in the absence of tax reform, cuts are one of the only moves the RBA can make.

"Australia's economy is failing to accelerate (again) in 2019-20", Toth said.

“Non-mining business investment remains especially weak, but it is sorely needed to boost our productivity growth and real incomes for all.

“In the absence of meaningful tax reform and micro-economic reform, another rate cut probably won't help much, but it is the only response that the RBA can offer," Toth added.

Westpac's Bill Evans says the RBA will cut rates to 0.25 per cent by June 2020.