Interest rates remained on hold at 1.75% pa following the Reserve Bank of Australia’s monthly meeting this afternoon.

It would have been a brave decision had the RBA decided to move on interest rates given the uncertainty thrown up in last Saturday’s election. Certainly, given the lack of clarity over who will be running the country, you could hardly blame the RBA for sitting on the fence.

That being said, politics and the election were conspicuously missing from the minutes of the Board’s meeting. The commentary around their decision focussed on global and domestic markets, which continue to show only moderate growth.

Looking ahead, many commentators are tipping the next move to be a rate cut. CPI remains low, and by the RBA’s admission “is expected to remain the case for some time.” The RBA has traditionally used monetary policy to keep inflation within its 2-3% target, however, with rates at historic lows, it’s uncertain how much and how often they can continue to reduce rates.

Even if the Reserve Bank elect to cut rates down the track there is no guarantee the banks will pass it on in full (or perhaps even at all). Lenders often complain about cost of funding pressure. One of the main factors that influence how cheaply banks can source their funding is through their credit ratings – Australia currently enjoys a AAA credit rating. Several agencies have warned that this could be under threat, certainly with both major parties now abandoning their obsession with bringing the budget back into surplus for at least 10 years. Should Australia lose their AAA rating, and the banks cost of funds increase, you can be sure that a bank led interest rate hike is on the cards, regardless of whether the RBA cut rates or otherwise. For this reason, it could make sense to consider fixing a portion of your loan if you are worried about increased interest rates. So whilst the political environment was missing from today’s RBA minutes, no doubt it would be in the back of Governor Stevens’ mind.

Tower Mortgage Broking are a professional Sydney based mortgage broker. For expert home loan advice on how today’s decision impacts your financial situation, contact us today.

 

Photography by Scott Lewis