Shock and awe: RBA makes the call

In a move that has left industry pundits reeling, the RBA has decided to cut the official interest rate to a ________. 

In the lead up to today’s decision, all 33 experts responding to the finder.com.au RBA survey predicted a hold verdict, while 93.62 per cent of brokers surveyed by HashChing also tipped that the RBA would keep the official cash rate on hold.

The last time rates were cut was in August 2016.

Mortgage Choice CEO John Flavell admitted to being surprised by the rate cut, noting that the RBA has “made it very clear in the past that future rate cuts were increasingly unlikely”.

Further: “In light of the RBA’s decision, I believe most lenders will be hesitant to pass on the full 25 basis point rate cut. If recent history is anything to go by, the last time the RBA cut the official cash rate, very few lenders actually bothered to pass on the full rate adjustment to borrowers.”

“And when you consider that most lenders have recently increased their interest only and investment pricing, I believe they will be even less inclined to pass on today’s full rate cut. Even if Australia’s lenders fail to pass on today’s rate cut in full to borrowers, it is still important for consumers to understand that home loan rates are sitting at historical lows,” he concluded.

Head of research at CoreLogic, Tim Lawless predicted a hold verdict, pointing to a slower housing market and high ratios of household debt to income. Further, he argued a rate rise in 2017 was “highly unlikely”. He said: “Surging dwelling values in Sydney and Melbourne had prompted some market commentators to call for a rate hike, however tighter credit policies have so far done much of the heavy lifting to cool the exuberance across Australia’s two largest housing markets. 

“With growth conditions across the housing sector moving back to a more sustainable level of growth, the likelihood of a cash rate hike in 2017 appears highly unlikely.”

The move will also come as a surprise to the 80 per cent of panellists surveyed by finder.com.au who anticipated the next cash rate move to be a rise, albeit most of those (60 per cent) predicted that it would not occur until the second half of 2018.

Chris Schade from My State Bank said: "Interest rate settings remain appropriate. Economy is performing a little below trend, inflation remains well contained, and the Aussie dollar is higher than the RBA would like. Holding rates at their current highly accommodative level is appropriate to allow the economy to continue to gain momentum over the coming couple of years."

John Hewson from ANU was more circumspect, noting that it is “hard to read [the] economy” while predicting a hold.

QIC’s Matthew Peter also predicted a hold verdict, however said that a “lack of wage growth and inflationary pressure combined with weak economic growth could justify a rate cut. However, until the housing market shows sustained signs of slowing, the RBA can't lower rates".