Reserve Bank holds official cash rate at 0.75 per cent

Australia’s official interest rate remains at the historic low of 0.75 per cent – but experts claim it’s only a matter of time before it is slashed.

Australia’s official cash rate has been left on hold – for now – following the Reserve Bank’s first meeting of 2020.

At the February policy meeting this afternoon, the Reserve Bank of Australia decided to keep the interest rate at the historic low of 0.75 per cent, following three previous rate cuts in June, July and October last year.

The move was widely expected by finance leaders, with market analyst Kyle Rodda claiming market pricing had implied just a 20 per cent chance of a cut earlier today.

However, that probability jumps to 100 per cent by May, according to Reuters.

In his statement, RBA Governor Philip Lowe said the outlook for the global economy “remains reasonable”.

“There have been signs that the slowdown in global growth that started in 2018 is coming to an end,” he said.

“Global growth is expected to be a little stronger this year and next than it was last year and inflation remains low almost everywhere.”

But he said issues such as the US-China stoush and the coronavirus outbreak were wreaking havoc.

“One continuing source of uncertainty, despite recent progress, is the trade and technology dispute between the US and China, which has affected international trade flows and investment,” he said.

“Another source of uncertainty is the coronavirus, which is having a significant effect on the Chinese economy at present. It is too early to determine how long-lasting the impact will be.”

Dr Lowe said Australia’s unemployment rate – which declined in December to 5.1 per cent – was expected to hover around that level for “some time”, and that inflation remained “low and stable” alongside “continuing signs of a pick-up in established housing markets”.

CoreLogic’s head of research Tim Lawless agreed today’s decision was unsurprising, especially considering the increased uncertainty brought about by Australia’s bushfire disaster as well as the unfolding implications associated with the coronavirus outbreak.

“The RBA may need to keep some rate cutting ammunition up their sleeve should these scenarios play out more severely than expected,” Mr Lawless said.

“To date, lower interest rates haven’t flowed through to a material improvement in economic conditions, but housing markets have well and truly responded, with national housing values rising 6.7 per cent since the first rate cut in June through to the end of January.

Reserve Bank of Australia Governor Philip Lowe said interest rates would remain at 0.75 per cent. Picture: Mick Tsikas/AAP

“Importantly we may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9 per cent over the year to November, driven by a 10 per cent increase in owner-occupier commitments.”

Mr Lawless said while rates remained on hold today, he expected the RBA to cut the cash rate later in 2020.

“Further rate cuts could fuel homebuyer demand, although we don’t expect future cuts to the cash rate to be passed on in full to mortgage rates,” he said.

Meanwhile, Canstar’s finance expert, Steve Mickenbecker, said the decision to hold the cash rate was expected given Australia’s lower unemployment rate and uptick in the inflation rate.

“A cash rate cut at this point wouldn’t stimulate anything other than Sydney and Melbourne house prices, with the banks unlikely to pass on cuts of more than 0.15 per cent and home buyers using this to pay off their home loan sooner rather than spending,” he said.

“A steady cash rate will please savers who have taken knocks in the last fortnight with two of the major banks cutting savings rates. ANZ’s base savings rate is now down to 0.05 per cent, precariously close to zero.

“Home loan borrowers have the upper hand at the moment whatever the Reserve Bank does, with interest rate competition continuing to heat up.”