Today the RBA announced that the official cash rate would remain at 1.5%. It has now been at this historic low rate for a record 18 months, showing a stability that our prime ministers can only dream of.
The truth is, that while it may seem that the RBA are not doing anything, they are trying to balance a number of competing factors made even more complicated this month by the out of cycle rate rise by Westpac. In fact the RBA are now sort of stuck between a rock and a hard place. RBA Governor noted “some lenders have increased mortgage rates by small amounts” but also said “the average mortgage rate paid is lower than a year ago”.
The reality is that a rate rise is looking less likely in the next 6 months than it did a month ago. For one thing, the RBA will not want to give the banks any more impetus to raise their rates. Banks are facing higher funding costs in the wholesale market and many will be looking to raise their rates to meet any shortfall.
The RBA have long been using the low rate as a stimulus to the economy and it has been working, but slowly. The Bank’s forecast is for the economy to grow by a bit above 3 per cent throughout 2018 and 2019. Inflation is sitting around 2 per cent, which is low and wages growth has stagnated. The level of household debt remains very high and the RBA noted the impact of the drought on the farming sector.
In short, the RBA believe that “holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time” or in other words, the low interest rate is doing what they want it to do.
So what does this mean for you? The key thing to remember is that interest rates are still really low. It’s also important to know that you can shop around. Keep an eye on your loan and don’t be afraid to act if your loan rate rises.
Talk to us today to make sure you are getting the best deal for you. You may also want to consider fixing part, or even all of your loan. Whatever your circumstances, it pays to be informed and to be ready and willing to search for a better deal. With the RBA unwilling to change the rate in a hurry it is a good time to review and take advantage of the low official rate.