RBA unveils interest rate decision

As widely expected, the nation’s official interest rate remains on hold at a historic low of 1.5 per cent. The rate has remained at this level since August 2016, when it was reduced from 1.75 per cent.

Last month, the bank’s governor, Philip Lowe, suggested that rates were not about to drift upwards any time soon, amid concerns about poor wage growth and high levels of household debt.

Speaking at the A50 Australian Economic Forum dinner, Mr Lowe said that Australia does not need to “move in lock-step” with other countries like the US and UK, which have already begun raising rates.

“We did not lower our interest rates to the extraordinarily low levels seen elsewhere after the financial crisis,” the bank governor said.

“Just as we did not move in lock-step on the way down, we don’t need to do so in the other direction.”

CoreLogic’s head of research, Tim Lawless, said that pressure to raise rates had eased as the Sydney and Melbourne property markets come off the boil.

“The controlled slowdown in housing markets, driven by subtle falls across Sydney and Melbourne, has eased pressure on the RBA to lift rates in order to quell housing market exuberance,” Mr Lawless said.  

“Higher on the RBA board’s agenda is likely to be inflation and employment. Year-ended inflation averaged just 1.9 per cent over 2017, and the unemployment rate was 5.5 per cent in January, up from 5.4 per cent in November last year.”

He added: “Despite the hold decision from the RBA, mortgage rates remain close to historic lows, particularly for owner-occupiers who are paying down both their interest and principal. Investors are facing a mortgage rate premium of around 60 basis points, but relative to long-term averages, their mortgage rates are low. While the RBA has flagged the next move in interest rates will be a rise, it remains likely that any hike to the cash rate is well in the future.”

Meanwhile, RateCity.com.au’s money editor, Sally Tindall, said that ballooning household debt will put a lid on rate rises for the foreseeable future.

“The International Monetary Fund has predicted mortgage rates will increase to 7.1 per cent by 2022, but the reality is, Australian households are carrying too much debt to withstand a succession of rate hikes,” Ms Tindall said.

“The RBA will have enough trouble finding a reason to hike rates even once this year.

“That said, the end of record low rates will eventually come. Borrowers need to take advantage of this period in our economic history by getting ahead on their mortgage and creating a buffer for when rates eventually rise.”

Household debt is also a concern for finder.com.au’s panel of 33 experts, who had all tipped another month of rates on hold.

They noted that Australia’s income-to-debt ratio is nearing the 200 per cent “danger zone” and suggested that rates will remain on hold for the entirety of 2018.

[Related: Rate hike not on the cards any time soon: RBA]