RBA Cash Rate Decision February 2020
RBA board has met on Tuesday the 4th of February 2020 for their cash rate decision and decided to keep the official cash rate on hold at a record low of 0.75%. This represents a record low cash rate for the RBA.
The Australian economy has appeared to reach a gentle turning point, with caution shown towards the Corona Virus, with the AUD showing weakness against the USD.
Household consumption continues to ben uncertain, with household income dragging on overall consumption. The labour market has been steady with the unemployment rate at 5.1%, with minimal pressure on wage growth. It is expected to remain at this level and decline to 5% by 2021.
Growth in Housing Market
Conditions in the Sydney and Melbourne housing markets have continued to rebound with strong price growth in the key capital cities. Growth in housing credit extended to owner-occupiers has stabilised, with FHB driving this segment with the governments FHBS, whilst credit to investors has started to pick up in demand.
From the last rate cut, we saw lenders pass on between 18 to the full 25 pts in a rate cut saving. Important to note this reduced the cost of variable loans, customers on fixed loans will not experience the passed on interest savings, though lenders have since repriced new fixed-rate loans. You can read more about the refinancing process or the process of purchasing a new property.
Lower mortgage rates will boost the aggregate household disposable income, which should feed into household spending.
It is yet to be seen that a rate cut would stimulate the credit and housing markets, similar to what occurred in late 2016. We have seen a bounce in some property markets post election. Recently APRA made changes to the assessment guidelines for Australian lenders, which will assist demand slightly, though lending to new borrowers remains tight.
Inflation across the country is expected to pick up but only gradually. Target inflation expected to be close to 2% in 2020 and 2021, currently sitting at 1.8%. These inflation targets have been revised down from previous RBA expectations, which had the inflation target at well over 2%.
The RBA board made the decision to keep rates on hold for this meeting.