RBA hikes cash rate - July 2018

The RBA board has raised cash rate to 1.75 per cent, in a move that surprised industry pundits.

None of the surveyed respondents on finder.com.au’s panel of industry experts predicted a rate change, while over 95 per cent of brokers surveyed by HashChing expect to see a hold, down from 98 per cent last month.

The last time the cash rate moved was in August 2016, when it dropped to its former level of 1.50 per cent and was held at that rate for 21 consecutive rate announcements  (or 22 consecutive months, seeing as there is no cash rate announcement in January).

It has been nearly eight years since the official cash rate increased; in November 2010, the RBA decided to increase rates by 25 basis points to 4.75 per cent.

CoreLogic’s head of research Tim Lawless predicted a hold but did see a rise on the horizon, albeit much earlier than his prediction of November 2019.

 “Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range. With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated,” Mr Lawless said.

finder.com.au’s panel overwhelmingly expected a hold due to the current economic conditions, with no one expecting a rise any time soon.

Nerida Conisbee from REA Group said that while businesses are confident in the current economy, consumers are not.

“Until this turns around, I think it is unlikely we will see an interest rate rise,” Ms Conisbee said.

Leanne Pilkington believed the decision to hold was appropriate for the current economic climate.

“Global economic forces, the widening wage gap between older and younger working Australians, and outcomes of the banking royal commission might all impact the RBA’s outlook in the near term, but for now it’s important that interest rates remain steady,” Ms Pilkington said.

Like Ms Pilkinston Capital Economics’ Paul Dales claimed the RBA was more concerned about the results of the royal commission, as well as the conditions of the current global trade dispute.

“There are still very few signs that inflation is going to rise back to the middle of the RBA's 2 [to] 3 per cent target,” Mr Dales said.

Despite a steady cash rate, John Kolenda, managing director at 1300HomeLoan, said mortgage holders are experiencing out of cycle rate increasers from many lenders due to funding pressures and regulatory requirements, which means trying to borrow is going to become even harder.

“Borrowing capacity for consumers has dropped up to 30 per cent over the past quarter and the borrowing parameters vary by lender, making it very challenging for borrowers to understand how much they can borrow and from whom,” Mr Kolenda said.

“Cost of funding issues has forced some lenders to increase the rates of some home loan products by more than 30 basis points, while other lenders play a wait and see game under the spot light of the Hayne Royal Commission, but they have the same pressure to increase rates out of cycle.”

[Related: Analysis: Has the RBA cash rate become irrelevant?]