Official cash rate remains at 1 per cent following Reserve Bank’s September meeting

The Reserve Bank has held Australia’s official interest rate at 1 per cent — but most experts agree it won’t stay there for much longer.

Australia’s official cash rate has been kept on hold for another month following two interest rate cuts in June and July.

At its September meeting, the Reserve Bank of Australia maintained a wait-and-see approach by holding the interest rate at a record low of 1 per cent.

The decision follows two 25 basis point cuts in June and July, following an almost three-year period without change.

However, economists have widely predicted further cuts were on the cards for 2019, with many expecting another cut as soon as next month.

In his statement, RBA Governor Philip Lowe said the outlook for the global economy remained “reasonable”, although risks were “titled to the downside”.

“The trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans due to the increased uncertainty,” he said.

“At the same time, in most advanced economies, unemployment rates are low and wages growth has picked up, although inflation remains low.

“In China, the authorities have taken further steps to support the economy, while continuing to address risks in the financial system.”

At its meeting today, the Board decided to leave the cash rate unchanged at 1.00 per cent - https://t.co/aueUmpLaqa

— RBA (@RBAInfo) September 3, 2019

He said Australia’s economic growth over the first half of 2019 had been “lower than earlier expected”, with household consumption affected by a long period of low income growth and declining housing prices and turnover.

“Looking forward, growth in Australia is expected to strengthen gradually to be around trend over the next couple of years,” he said.

“The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector.”

RBA governor Philip Lowe said the board had decided to keep the cash rate on hold again. Picture: Lukas Coch/AAP Image

According to CoreLogic research director Tim Lawless, the resurgence in Sydney and Melbourne housing values was likely a key topic of conversation among the RBA board this afternoon.

“In line with rate cuts in June and July, housing values in Australia’s two largest cities have recorded a lift, with dwelling values rising 1.9 per cent and 1.8 per cent in Sydney and Melbourne over the past three months,” he said.

“August data showed CoreLogic’s national index recorded its first month on month rise since October 2017 and five of the eight capital cities saw dwelling values increase.

“Clearly housing market conditions are responding to lower interest rates as well as the recent loosening of loan serviceability rules from APRA and the positive influence of the stable federal election outcome. The recent step up in the pace of value growth is likely to raise some concern that the lowest mortgage rates since the 1950s is fuelling renewed housing market exuberance at a time when household debt remains around record highs.”

Mr Lawless said high levels of household debt were manageable while interest rates were very low — although that could soon change once rates rose again.

“The recovery trend is still very early and there is the potential for the pace of growth to slow as advertised stock levels rise in line with spring, but no doubt the RBA will be keeping a close eye on housing market conditions,” he said.

… but further cuts are expected as soon as next month. Picture: iStock

“If the recent acceleration in housing value growth is sustained over coming months, we could potentially see additional credit policy levers pulled, aimed at keeping a lid on household debt. “Limiting lending to borrowers on high debt-to-income ratios could be one option, or introducing hard limits on high LVR lending could be another mechanism that would reduce the risk of a further build up in household debt while at the same time allow borrowers to access housing credit and take advantage such low interest rates.”

According to AMP Capital chief economist Shane Oliver, another two rate cuts by the year’s end are a real possibility.

“While house prices in Sydney and Melbourne may be bouncing higher, growth looks to have remained very soft in the June quarter … and there is no sign of any pick up in wages growth,” he told AAP.

At least two more rate reductions are expected by March 2020, with a cut to 0.75 per cent already fully priced in for November, and October increasingly likely.

With wires

Originally published as Official cash rate remains at 1 per cent following Reserve Bank’s September meeting