Reserve Bank leaves official cash rate on hold at 2.0 per cent

THE Reserve Bank has left the official cash rate on hold at its record low of 2.0 per cent for the sixth month in a row.

Saturday auction coverage. A derelict house at 51 Prospect St, Erskinville NSW. Photo: Bob Barker.

THE Reserve Bank has left the official cash rate on hold at its record low of 2.0 per cent for the sixth month in a row.

The central bank last moved in May when it cut the official cash rate by 25 basis points, following an earlier cut in February.

AMP Capital chief economist Dr Shane Oliver had been tipping a cut, saying the weak inflation figures released last week and the bank rate rises had galvanised the case for a cut. Core inflation rose 0.3 per cent during the quarter and 2.1 per cent for the year.

“Already we’ve got an economy that’s fairly sluggish and there are increasing signs that housing approvals are peaking, suggesting the contribution to growth from dwelling investment will peak next year,” he said.

“Against that backdrop there was a case for the RBA to take out a bit of insurance and go for the path of least regret.”

All four of the big banks jacked up their mortgage rates last month in response to increased capital requirements despite raking in record profits.

Peter White, chief executive of the Finance Brokers Association of Australia, said the hold was a telltale sign that rates would start to kick up soon.

“No surprises. It’s probably the best thing in the current environment,” he said. “Some time over the next 12 to 24 months they’ll start to creep up again.”

Michelle Hutchison, money expert with comparison website Finder.com.au, said while a rate hold would usually mean mortgage repayments would remain steady, a recent rush of lenders hiking rates means borrowers can expect to pay an extra $32 a month of a $300,000 loan.

“Since Westpac’s announcement last month, we’ve seen a total of eight banks follow by announcing rate rises. The latest is AMP, which yesterday announced it will increase rates on variable owner-occupied loans by 0.18 per cent,” she said.

Ms Hutchison said the decision came as no surprise, with 80 per cent of economists in Finder’s monthly survey tipping a rate hold. “The majority had said an immediate cash rate cut to offset Westpac and other banks’ rate hikes was unlikely, while the property market’s recent cooling was too soon to lead to a rate change,” she said.

“In the meantime, it’s safe to assume more lenders will continue to raise their rates, following the lead of the big four banks, who all announced rate rises last month.”

Treasurer Scott Morrison last week said customers should hold their bank to account. “They make handsome profits, that’s all true, and they make a commercial decision to actually put up the price for their customers,” he told 2GB.

“Now what I’m saying is I’m not going to give them a leave pass to do that. They can’t blame the government for their commercial decision. That’s their decision and they have to justify it to their customers.”

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Originally published as Reserve Bank leaves official cash rate on hold at 2.0 per cent