RBA decision to hold rates – but for how long?
mortgage holders were issued an unexpected rate reprieve this week when the Central Bank opted to keep interest rates unchanged at its board meeting on Tuesday.
Better yet, most banks and lenders have indicated they will not raise mortgage rates independent of RBA, despite media speculation, but quite the opposite.
RBA governor Glenn Stevens said the central bank had decided to leave the cash rate at 4.5% due to expected inflation – that monetary policy is designed to control – to remain within the target band of 2-3% in the short term.
It comes as a surprise to mortgage holders and economists, most of whom expected the RBA to raise rates by 25 basis points to 4.75%. An increase in the rate of 0.25% would have pushed the monthly mortgage repayment of $ 300,000 to about $ 2,070, an increase of about $ 50 per month.
Before borrowers too comfortable, however, it is important to note that Stevens indicated a trend toward higher interest rates “at some point, to ensure that inflation remains consistent with the medium-term.”
Economists and analysts have translated this means that the RBA will deliver a rate hike in four weeks, the Bank Board meeting in November.
“November is still a possibility for a move, but much will depend on quarterly inflation data [freedom] at the end of this month. A walk seems more data dependent than we thought,” said Brian Redican, senior economist at Macquarie Group high level.
”I think it depends on the outcome of the IPC, so it’s definitely not a fact at this time. Might actually have interest rates on hold for much longer than we thought. ”
Before the decision of the RBA was announced this week, the futures market had priced in a 66% chance of a rate increase in October.
By the afternoon of Tuesday, the market had priced in a one in three chance of a rate hike in November.
Of the four major banks, ANZ, NAB and Westpac have ruled out the possibility of increasing mortgage rates independently. ELA has to make a decision, with a spokesman only willing to confirm that “the Bank does not speculate on the movement and regularly reviews its rates.”
Industry analysts have predicted that lenders use an RBA rate rise of 0.25% as an opportunity to increase their mortgage rates by 0.4%, although the government has warned lenders against the use of a higher effective rate as an excuse to hit consumers with an additional interest rate hike.
“I do not think there is no justification for any bank to override the decision of the official cash rate by the Reserve Bank, Treasurer Wayne Swan told ABC Radio this week.
Add Leon Carter, National Secretary of the Finance Sector Union, “It is clear that many Australians are feeling the burden of debt, the contraction of rising interest rates and big banks must accept some responsibility for this trend. In a time of record bank profits and executive compensation, it is difficult to accept the argument that the pressures of funding guarantees an increase in the rate. “