91% of pundits expecting RBA cut

Rate comparison website Finder.com.au’s RBA Cash Rate Survey has reported that of the 35 market analysts and economists surveyed, 32 (91 per cent), expect the Reserve Bank of Australia (RBA) to cut the official cash rate when its monetary policy board meets later today.

All respondents that predicted a cut have forecast a 25bps decrease, which would bring the cash rate to a new record low of 1.25 per cent.

Additionally, 60 per cent of pundits said the cash rate would fall to 1 per cent before the central bank considers a rate hike, while 38 per cent predicted a floor of 0.75 per cent.  

The shift in expectations follows RBA governor Philip Lowe’s concession that the board would “consider the case” for a rate cut in June, in light of flat inflation growth, subdued wage growth, and weaker than expected labour market conditions.

According to Finder’s insights manager, Graham Cooke, the “writing is on the wall”.

“We can be fairly certain of the direction the cash rate will take in June,” he said.

“However, the questions we need to ask are: how much will they cut by, and how many cuts will follow this one?”

The majority of surveyed respondents (59 per cent) have predicted two cuts this year; however, 22 per cent have forecasted three cuts before December.

A Finder analysis has revealed that just one rate cut could save mortgage holders with a $500,000 home loan approximately $900 per year, which would increase to an annual saving of more than $2,600 if three cuts are announced.

“For first-time buyers with a deposit, access to more affordable finance could be their ticket into the property market,” Mr Cooke continued.

However, Mr Cooke noted that some banks may not pass on savings through lower mortgage rates.

“A falling cash rate does generally lead to cheaper repayments for existing borrowers,” he said.

“That said, if the RBA cuts by 25 basis points, this doesn’t necessarily mean banks will pass on the rate cut in full. 

“Just three of the four big banks passed on the full cut last time around – and waited up to 20 days to do so – therefore borrowers should brace themselves and put matters into their own hands.”

Mr Cooke pointed to research from Finder, which found that the average variable home loan rate has responded to movements in the cash rate on 92 per cent of occasions since 1990, compared to the average online savings account rate, which reflected cash rate changes on 99 per cent of occasions.

“In other words, banks may be quicker to shave the interest off your savings than they are to take it off your home loan,” Mr Cooke added.

Research director at comparison website RateCity, Sally Tindall, has said that lenders may be dissuaded from passing on rate cuts in full as they look to recover losses incurred from weaker credit growth.

“Banks have been hiking rates since 2017 due to the high cost of funding, but this pressure has dissipated, so the next RBA cut should, in theory, be passed on in full,” she said.

“That said, it’s been a tough year for the banks in a slowing home loan market, so some lenders may choose to hold part of the cut back.”  

Mr Cooke encouraged borrowers to “vote with their feet” if rate cuts are not passed on to home loan customers.   

“A lower cash rate will spur even further competition within the market, so it is the perfect time to weigh up your options as you have the bargaining power,” he said.

Several lenders, including NAB, have dropped their mortgage rates in anticipation of a monetary policy adjustment.

The cuts have come in the form of fixed rate reductions of up to 50bps, with ING the only lender to reduce its variable rates in the latest wave of pricing changes.

[Related: Mortgage rates drop ahead of RBA move]