Ticky Fullerton: Can you bet the house on getting a rate cut?
If the RBA cuts rates on Tuesday, this will be the first rate cut for Governor Philip Lowe and first cut for the Reserve Bank in two-and-a-half years. After all, we hold the world record for 27 years of growth, business editor at Sky News, Ticky Fullerton, writes.
As a young thing back in 1991, my bank and I bought a small flat in Sydney. To be clear, it was mainly my big bank.
The interest rate I paid? Seventeen per cent. That’s right, 17 per cent. And I wasn’t alone. The RBA cash rate was at 15.5 per cent and it had just peaked at 17.5 per cent. It is now 1.5 per cent. Were we nuts?
What saved us all, of course, was the great Sydney property boom.
Almost 30 years later, I still own one property, now a house, also with the bank, and still with a mortgage that now lasts long enough to outlive me. This time though, the interest rate has a three in front of it and looks to be going lower for new borrowers.
If the RBA cuts rates on Tuesday, this will be the first rate cut for Governor Philip Lowe and the first cut for the Reserve Bank in two-and-a-half years. After all, we hold the world record for 27 years of growth, so this is a big decision for Philip Lowe.
For a long time the Governor, a glass-half-full fellow like his predecessor, has hoped falling unemployment would deliver stronger wages growth. But finding this traction has been like watching paint dry.
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Inflation was flat in the last quarter Even if that was a blip, we’re still below the RBA’s target of 2-3 per cent. Lowe has said he would factor in jobs numbers in any decision and the last set we had were softer.
On the other hand, he’s no doubt read the Fair Work Commission’s view on the economy, which it used to justify a 3 per cent lift in the minimum wage last week.
Governor Lowe faces a simple question: what will a quarter of a per cent cut in the cash rate actually do out there in the economy? Will it really stimulate demand? If not, it is rather a waste of the narrow 1.5 per cent buffer the RBA has to steady the economy if we really faced a financial crisis.
Risk in the system could well be on the increase if the nation’s savers pull out their pathetic-yielding bank deposits for higher returns elsewhere.
Yet a likely rate cut from the RBA is not the only factor putting a floor of confidence under the property market. Credit should go to the regulators who have thus far achieved a soft landing.
Pesky negative gearing changes from Labor are dead; the prudential regulator APRA wants to lower the current 7 per cent rate that borrowers have to show they can service on a loan (which will look even more ridiculous with a rate cut); and we’ve got a shiny new first homebuyer carrot from Scott Morrison.
What the many Aussies with mortgages will be asking after a Tuesday cut is will the banks pass it on to them — in full, as the Treasurer is demanding?
When I asked CBA chief Matt Comyn the question last week he stayed mum, but did acknowledge the fight to win back public trust after the royal commission was a factor.
* Ticky Fullerton is Business Weekend host and Business Editor Sky News
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