The RBA board voted to leave the official cash rate on hold at 1.5% for the 28th meeting in a row today and gave no clear indication as to whether it was in favour of a future cut or hike.
The bank’s accompanying monetary policy statement said the main domestic uncertainty centred around the outlook for household spending and falling house prices in some cities.
“Growth in household income has been low over recent years, but is expected to pick up and support household spending,” the statement said.
Since the board last met, Westpac, Macquarie Bank, Citi, Aussie, Suncorp, AMP and ING are among a number of lenders to have made out-of-cycle hikes or cuts to home loans.
During the month of February, most interest rate relief was given to fixed rate borrowers, while hikes where dished out to new and existing variable rate loan customers.
While interest rates might be moving, lending data from the Australian Bureau of Statistics last month showed investors and owner-occupiers’ demand for home loans has softened.
The supply of loans has also eased somewhat due to the impact of tighter lending standards and caution from some lenders at a time when home prices are falling.
CoreLogic Head of Research Tim Lawless said there was no doubt the RBA would be tracking housing market conditions very closely.
He said weak housing market conditions may already be spilling over to the broader economy and its performance over coming months could provide some clues into the central bank’s future monetary policy decisions.
“A further deterioration in the pace or geographic scope of declines could tip the balance in favour of a rate cut later this year as the RBA becomes wary of the wealth effect moving into reverse,” Mr Lawless said.
Westpac Chief Economist Bill Evans said further weakness was likely for the Sydney and Melbourne housing markets over the course of 2019 and 2020 – a key factor in the major bank’s new outlook for the cash rate.
Mr Evans had previously held the line that the cash rate would remain on hold for the foreseeable future, but recently changed his forecast to two rate cuts of 0.25 percentage points each in August and November this year.
He said he did not expect these cuts to immediately stabilise the housing market.
In a speech in early February, RBA Governor Philip Lowe flagged the possibility of a rate cut if the economy proved to be weaker-than-expected.
This stood in stark contrast to the RBA statements from last year which forecast the next move in the cash rate to more likely be up than down.
Following this change to a more neutral stance from the RBA, Commonwealth Bank economists also revised their forecasts and no longer expect a rate rise in 2019.
CommBank economists said due to the Governor holding the RBA’s relatively optimistic forecasts with less conviction, it had prompted them to push back their forecast of a rate hike from November 2019 to November 2020.
AMP Capital Chief Economist Shane Oliver has forecast the RBA to cut the cash rate twice this year to a record low of 1% as the housing slowdown cuts into growth and threatens the inflation outlook.
“The first cut is unlikely until around August after the RBA gets to see the outcome of the April budget and the Federal election and revises its growth and inflation forecasts down further,” Mr Oliver said.
He said the Australian dollar is likely to fall into the 60 US cents territory as the central bank moves to cut rates.