March RBA Decision: Interest Rate Held At 1.50%

At this month’s meeting, the Reserve Bank of Australia (RBA) held the cash rate at the record low of 1.50%. Find out why…

The decision was widely expected, with all 24 economists surveyed by Bloomberg expecting the rate to remain at 1.50%.
It marked the RBA’s sixth hold in a row since the 25-basis-point cut in August 2016.

The accompanying March monetary policy statement from RBA Governor Philip Lowe was largely the same as February’s, which suggests the RBA’s reading of Australia’s economy hasn’t changed much.

Governor Lowe reiterated that Australia’s economy is continuing its transition following the end of the mining investment boom.

“Exports have risen strongly and non-mining business investment has risen over the past year,” Lowe said.

“Most measures of business and consumer confidence are at, or above, average. Consumption growth was stronger towards the end of the year, although growth in household income remains low.”

RBA wary of record household debt

In a speech last month, Governor Lowe made it clear the Reserve Bank is reluctant to cut rates further because of the record levels of household debt.

“It is possible that continuing rises in indebtedness, partly as a result of low interest rates, increase the fragility of household balance sheets,” Lowe said.

“If so, then at some point in the future, households having decided that they had borrowed too much, might cut back consumption sharply, hurting the overall economy and employment.

“It is difficult to quantify this risk, but it is one that is difficult to ignore. As I said, our focus is on the medium term, not just the next year or so.”

‘Another month of wait and see’

Canstar’s Group Executive, Financial Services, Stephen Mickenbecker said consumers shouldn’t follow the Reserve Bank’s ‘wait and see’ strategy, suggesting that “now is the time to compare and see if you can save”.

“The needle has swung away from the case for a further cash rate reduction,” Mickenbecker said.

“This strengthens the case for fixing your loan, especially with fixed rates still below 4%. The lowest 5-star rated 3-year fixed interest rate is as low as 3.69% p.a..”
But Mickenbecker added that the RBA is unlikely to raise rates until they have seen one or two quarters of economic data to confirm Australia’s sustainability.

When will rates move?

Many economists, such as AMP’s Chief Economist Shane Oliver, do not expect the RBA to make any rate movements at all in 2017.

 

CommSec’s Chief Economist Craig James shares that view, believing the RBA is basically telling consumers and businesses to get on with their lives and stop constantly worrying about interest rate changes.
“The Reserve Bank believes the conditions do not warrant an interest rate increase and do not warrant an interest rate cut, and in the current environment that’s very much a positive thing,” James said.

 

Nine News’ Finance Editor Ross Greenwood also expects the cash rate to remain on hold for the next 12 months, but pointed out signs that the next move could be a rate rise.
“Money markets are now starting to indicate that the next move in interest rates, when it comes, which could be in the middle of next year so more than 18 months away, would be up and not down,” Greenwood said.

 

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