No rate relief for borrowers as RBA stays on hold
Borrowers have been denied surprise mortgage relief by the Reserve Bank, which left rates on hold after hotter-than-expected inflation figures.
The Reserve Bank of Australia has held interest rates steady as widely expected, with attention turning to when, or if, the central bank will cut again.
Borrowers will have to wait until at least November for more mortgage relief, but hotter-than-expected inflation and an enduringly robust labour market have raised the prospect the RBA might have delivered its last rate cut.
Tuesday’s decision leaves the cash rate at 3.6 per cent after 75 basis points of cuts since February.
Economists and bond traders had widely expected the central bank to keep its finger firmly on the pause button when it wrapped its latest monetary policy meeting on Tuesday, after inflation came in hotter than expected.
Monthly inflation jumped to three per cent in August, snuffing out faint hopes for a rate cut in September.
“With signs that private demand is recovering, indications that inflation may be persistent in some areas and labour market conditions overall remaining stable, the board decided that it was appropriate to maintain the cash rate at its current level at this meeting,” the bank said in its announcement.
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It said financial conditions have eased since the beginning of the year but it would take some time to see the full effects of this year’s three cash rate reductions.
Markets significantly repriced the odds for further rate reductions after last week’s consumer price index print, with only one more cut priced in this cycle ahead of the RBA’s announcement.
But Tim Lawless, research director at property analytics firm Cotality, said the central bank was unlikely to read too deeply into the volatile monthly figure.
The more reliable quarterly data due out in October will be more decisive for the RBA’s next meeting in November.
A benign reading could clear the way for more rate relief and boost home prices, Lawless said.
“A further cut to interest rates is likely to provide additional support to housing demand from an increase in borrowing capacity and serviceability assessments, but also via higher consumer sentiment,” he said.
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All nine board members voted in favour of a hold.
Economists at NAB, Deutsche Bank, TD Securities, Citi and Nomura have abandoned predictions of another cut this year.
Nomura’s Andrew Ticehurst and David Seif said the economy had grown more strongly than expected, unemployment had stayed low and a material rise in services inflation had threatened the central bank’s inflation forecasts since it cut rates when it last met in August.
The Reserve Bank has lowered official mortgage rates three times since February, shaving more than $270 from monthly repayments for an average home loan of $600,000.
Boosted with extra purchasing power, increased demand from prospective homebuyers has driven home prices to fresh highs after seven months of consecutive growth, according to Cotality’s home value index.
First-home buyers will get another boost on Wednesday, when the federal government’s expanded first-home buyer guarantee scheme – which enables eligible Australians access to 5 per cent deposits – comes into effect.
In Sydney, where property price caps for the scheme lift to $1.5 million on Wednesday, a couple on a dual disposable income of $123,674 will have their time to save for a deposit cut from more than 10 years to less than three years.
In Adelaide, purchasers will have the deposit hurdle lowered by five years and seven months, while homebuyers in Melbourne and Brisbane will save five years and nine months.
Domain chief economist Nicola Powell said there were downsides to the scheme.
A lower up-front deposit meant more debt overall and a higher risk of slipping into negative equity if prices fell, while extra demand from first-home buyers would further push up home prices.
Housing Minister Clare O’Neil said the scheme would help young Australians start building equity in their own home rather than paying off someone else’s mortgage.
“That’s life-changing,” she said.
