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RBA Holds Rates, Due To Low GDP GrowthThe longest ever period without an increase to the cash rate in 30 months!

The Reserve Bank of Australia (RBA) has kept the official cash rate on hold for its first meeting of 2019. This afternoon’s cash rate decision, coming in the wake of the banking royal commission, extends Australia’s longest ever period without an increase to the cash rate in 30 months.

The RBA is growing less confident about Australia’s economic outlook, flagging downgrades to its GDP growth forecasts and warning that “downside risks have increased”.

Governor Philip Low said, “The central scenario is for the Australian Economy to grow by around 3% this year and by a little less in 2020 due to slower growth in exports of resources”.

Previously, the RBA saw the GDP growth forecasts to sit at 3.25% for this year and 3% in 2020.

Despite the noticeable deterioration in recent Australian Economic data due to the slower growth in exports and resources, the RBA decided to keep cash rate unchanged at 1.5%, a result which was widely expected by financial markets.

However, borrowers have been stung with out-of-cycle rate hikes despite the low official Cash Rate, due to the cost of funds from overseas markets increasing.

ME Bank and ING Both increased their interest rates last week following NAB’s lead the previous week. NAB had held off raising rates along with the Big Four in August and September last year.

The increase which has passed onto consumers was a 14 basis point increase since September last year. Resulting in the average variable rate for an Owner Occupier home loan increasing to 4.37 per cent.

Head of research at CoreLogic Tim Lawless said; “If we see mortgage rates rising more broadly, we might see the RBA become more willing to consider a rate cut in an effort to offset higher funding costs and support heavily indebted household balance sheets”.

 

 

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