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April RBA decision: Cash rate held for record 18th consecutive meeting

The Reserve Bank of Australia (RBA) has left the cash rate on hold again at 1.50% amid strong employment growth and slowing housing markets in Sydney and Melbourne.

RBA

What’s the April 2018 RBA Cash Rate?

In its third meeting of the year, the RBA board agreed to leave the cash rate on hold at 1.50%.

This marks the eighteenth meeting in a row the RBA has held rates steady, with the last rate movement taking place in August 2016 with a 25 basis point cut.

Experts correctly predicted today’s decision, with all 17 economists surveyed by Bloomberg forecasting the cash rate would remain on hold in April.

RBA Governor: ‘Central forecast remains for faster growth in 2018’

In the statement accompanying the April decision, RBA Governor Philip Lowe generally repeated the same sentiments about Australia’s economy as last month’s statement, but had a stronger focus on international economic conditions.

Governor Lowe acknowledged rising inflation in other economies and said further steps from other central banks to withdraw monetary stimulus are expected as conditions in the global economy improve.

He also noted some “tightening of conditions” in short-term money US dollar money markets, which saw higher US dollar short-term interest rates flowing through to “higher short-term interest rates in a few other countries, including Australia”.

Australia’s central bank maintains its forecast for Australia’s economy to grow faster in 2018 than 2017’s growth figure of 2.7%, according to Governor Lowe.

Lenders move on rates anyway

Despite yet another month of no change, a number of banks and financial institutions have moved rates on home loans and term deposits.

Over March, six institutions cut rates (average cut of 18 basis points) on owner-occupier standard variable principal and interest loans, while four increased rates (average increase of 7 basis points).

For investment standard variable principal and interest home loans, five lenders lowered rates (average cut of 26 basis points) while four lenders increased rates (average increase of 12 basis points).

On 1-year term deposits, three institutions cut rates by an average of 17 basis points while seven increased by 18 basis points.

Canstar’s database over March tracked the following loan movements:

Residential variable home loan rate movements

Owner Occupier Principal & Interest – Home Loan Market Snapshot (1st Mar to 29th Mar 2018)
Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Decreases 3 7 1 2 2 0 4
Increases 2 5 9 10 11 8 8
Avg. Decrease -0.22% -0.18% -0.10% -0.20% -0.10% 0.00% -0.39%
Avg. Increase 0.08% 0.07% 0.09% 0.06% 0.13% 0.10% 0.11%
Source: www.canstar.com.au. Includes all eligible home loans in Canstar’s Home Loans database, available as of 1/03/2018 to 29/03/2018. Interest rates based on a loan amount of $400,000, 80% LVR, and principal and interest repayments. Packaged home loan products were included.

Investment variable home loan rate movements

Investment Principal & Interest – Home Loan Market Snapshot (1st Mar to 29th Mar 2018)
Basic Variable Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Decreases 2 5 6 10 12 4 4
Increases 0 7 9 7 13 8 9
Avg. Decrease -0.59% -0.26% -0.26% -0.26% -0.26% -0.08% -0.35%
Avg. Increase 0.00% 0.12% 0.27% 0.26% 0.20% 0.30% 0.27%
Source: www.canstar.com.au. Includes all eligible home loans in Canstar’s Home Loans database, available as of 1/03/2018 to 29/03/2018. Interest rates based on a loan amount of $400,000, 80% LVR, and principal and interest repayments. Packaged home loan products were included.

Lenders expected to raise rates despite RBA inaction

Amid rising interest rates in overseas markets, Canstar’s Group Executive for Financial Services, Steve Mickenbecker, said local lenders could soon raise rates even if the RBA keeps the cash rate steady.

“With international rates rising, lenders will come under pressure with higher funding cost on the wholesale element of their funding, and it will only be a matter of time before they have to pass this on to borrowers,” Mr Mickenbecker said.

“No doubt monetary tightening overseas will put some pressure on the RBA to lift the cash rate, however it is going to be looking for an increase in inflation, and in particular wages growth, before it moves.

“The high level of household debt in the absence of wage inflation would introduce mortgage stress and expose the system to risk.”

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