RBA Update


Following mounting expectation of a further cash rate cut after June’s reduction of 25 basis points, the Reserve Bank of Australia (RBA) has just announced its July decision.

The RBA has again reduced the official cash rate by 25bps, resulting in a new record low of 1%.

According to Canstar group executive of financial services, Steve Mickenbecker, “It would not be surprising to see banks only partially pass on the next cut to borrowers.”

“But, I wouldn’t expect any lenders to make an announcement like this inside the ten-minute mark, as we saw after the June cash rate cut was announced,” he added.

Canstar data shows that only three-quarters of lenders reduced their variable rates following last month’s RBA cut, with the average reduction in variable rate home loans being 22bps.

“It’s getting tough for the banks. Many, including the majors, have savings account base rates of only 0.30%. Fully passing on a 0.25% cash rate will see further pressure on these savings rates and the zero mark is not so far off,” explained Mickenbecker.

However, when asked about future cash rate cuts just yesterday, Treasurer Josh Frydenberg reiterated, “We do expect the banks to pass on in full to the Australian people the benefits of sustained reduction in their funding costs.”

According to CoreLogic research analyst, Cameron Kusher, today’s decision was likely an effort to stimulate the economy and had “very little” to do with the housing market.

“In fact, the ongoing slowing of the rate of decline in dwelling values throughout 2019 and the recent uptick in Sydney and Melbourne dwelling values, would likely have reduced concerns of further wealth erosion from housing,” he said.

Released yesterday, the CoreLogic home value index charted the first increase in housing values in Sydney and Melbourne since 2017, albeit by just 0.1% and 0.2% respectively.

However, Kusher highlighted that values are still trending lower on a national basis and cautioned against expecting a rapid rebound in the market, even with the further lowered interest rates.

“Despite these positives, the introduction of the banking code of conduct and the expansion of Comprehensive Credit Reporting (CCR) from the beginning of July will ensure that, although taking out a mortgage may become a little easier, the scrutiny on loan applications will remain significantly greater than it has been in the past.

“Given this, the expectation is that a recovery in housing market conditions is likely to be slow and gradual.”

If you have any questions around the latest RBA announcement, interest rates or about home loans in general, please get in touch.