Just ahead of Santa’s annual present run, the Reserve Bank board met today for the last time this year to deliver a gift of their own (or a lump of coal, depending on who you are) – that is to keep the cash rate unchanged at the record low of 1.5%.
The decision came as no surprise, with all economists polled by Bloomberg correctly predicting the outcome.
Given the steady cash rate outlook, with market expectations for it to be kept on hold in the near future, you might be wondering who is better or worse off.
Canstar’s Group Executive of Financial Services Steve Mickenbecker said savers and self-funded retirees continue to suffer low returns, while some home loan borrowers can benefit from this low interest rate environment.
He said unlike home loan rates, the banks rarely lifted deposit rates until the RBA lifted the cash rate, which was not great for savers.
“It is now hard to find savings rates up around 3%, and the trend has been solidly down since 2008,” Mr Mickenbecker said.
On the flip side, Mr Mickenbecker said some home loan borrowers were better off with the cash rate on hold.
He said new borrowers were being offered attractive introductory rates and fixed rates on their home loans, provided they can meet increasing scrutiny over credit worthiness post the royal commission into financial services.
“For those who trip at the credit hurdle, consider yourself locked in to further increasing rates as the US interest rates rise,” he said.
However, he said some banks have been increasing rates for their existing borrowers to offset their own rising borrowing costs (otherwise known as wholesale funding costs), which was likely to continue to rise in the near future.
Recent first home buyers in Sydney and Melbourne were also facing a sticky situation.
Mr Mickenbecker said in spite of record low home loan rates, home buyers in the nation’s two biggest property markets were under the twin stresses of increasing mortgage repayments and falling house prices.
“Without inflation, these first home buyers become a risk to themselves and to the banks,” he said.
Data released this week from research group CoreLogic showed Sydney and Melbourne’s housing markets were down 9.5% and 5.8%, respectively, in November.
RBA Governor Philip Lowe highlighted the fact that banks were issuing less home loans in his monetary policy statement accompanying today’s decision.
“Credit conditions for some borrowers are tighter than they have been for some time, with some lenders having a reduced appetite to lend,” Dr Lowe said.
He said growth in owner-occupier home loans had eased at an annualised pace of 5% to 6% and demand for home loans from property investors had also slowed noticeably.