RBA on hold again as ANZ, NAB alter their forecasts for interest rates
The Reserve Bank of Australia (RBA) has again remained cautious, leaving the cash rate on hold at 1.50% during their March 2018 rate review meeting. However, two of Australia’s ‘big four’ banks have revised their interest rates outlook for the remaining of 2018.
Disclaimer: Comments made in this article are either general in nature or quoted from the RBA press release. You should not solely rely on the information of this blog. You should consider seeking expert financial and/or credit advice before making any investment or house acquisition decisions.
Despite weaker economic data on several fronts, RBA Governor Philip Lowe remained relatively positively toned in the March press release. The official cash rate has now been on hold since August 2016. The RBA noted that the low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.
The highlights of the media statement are summarised below.
RBA on the Economy
- “The Bank’s central forecast is for the Australian economy to grow faster in 2018 than it did in 2017”.
- “Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy”.
- However, “one continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high”.
- “Employment grew strongly over the past year and the unemployment rate declined”.
- “Employment has been rising in all states and has been accompanied by a significant rise in labour force participation”.
- “The various forward-looking indicators continue to point to solid growth in employment over the period ahead, with a further gradual reduction in the unemployment rate expected”.
- “Wage growth remains low. This is likely to continue for a while yet” however ” the rate of wage growth appears to have troughed” and “the stronger economy should see some lift in wage growth over time”.
- “There are reports that some employers are finding it more difficult to hire workers with the necessary skills”.
RBA on Inflation
- “Inflation remains low. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing”.
- “A gradual pick-up in inflation is, however, expected as the economy strengthens”.
The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high.
RBA on the Property Market
- “Nationwide housing prices are little changed over the past six months, with prices having recorded falls in some areas”.
- “In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years”.
What will the RBA likely do with the cash rate for the remainder for 2018?
Currently, the market is saying that no rate changes are on the cards just yet (despite the record run of being on hold). Since the last board meeting, two of Australia’s biggest banks (ANZ and NAB) have revised their interest rate forecasts for 2018. Before the change, both of these two banks forecasted two RBA rate increases in 2018. Now, both banks are forecasting one rate increase in 2018 – of 0.25% to 1.75%. Both say this could happen at the Melbourne Cup day board meeting this November. These predictions are in line with CBA’s forecast for rates in 2018.
However, the other member of the ‘big 4’ – Westpac – believes that the RBA will make no changes to the cash rate in 2018.
Wesptac is the only member of the big 4 banks that doesn’t think rates will rise in 2018
I’m about to start looking for my first home. What should I do?
A great place to start is to speak with a qualified Mortgage Broker whom specialises in first home buyers. A competent Mortgage Broker can determine your borrowing capacity, assist you compare home loan options, help you get a home loan pre-approval, guide you through the whole finance process and of course, answer any jargon you don’t understand.
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I’m still saving for a home deposit – does the RBA’s announcement effect me?
Unfortunately, the rate of interest on savings accounts are relatively low at the moment. But when saving for a home deposit, as cliche as it may sound, every bit really does count. Here are some hot tips:
- Hot tip 1: Look at your expenses and consider whether you can cut back on any of your lifestyle expenses. A good place to start is our free Budget Planner.
- Hot tip 2: When was the last time you looked at how much interest your savings is earning? When you have a spare moment, take the time to check your rate of interest and compare this to other savings accounts and term deposits around the net. Some of Australia’s leading comparison sites include Mozo, Canstar, Finder and RateCity.
- Hot tip 3: The First Home Super Saver (FHSS) became law in December. Read up on how it works and consider whether this could be something that will help you save your home deposit quicker. How the FHSS works.
I have some money saved, but I’m not sure if it is enough?
Working out how much you need can be tricky. Have you tried our FHBA Deposit Estimator? It gives you a quick snapshot of how your savings are going versus an estimate of how much more you might need to save in order to have the complete deposit. And it’s free! Try it now!
I want to know more about the RBA decision
Interested in reading the full RBA statement from the March 2018 board meeting? You can access the RBA media press release here.
When is the next RBA board meeting?
The next RBA board meeting will be held on Tuesday the 3rd of April.
If you have any questions get in touch with your FHBA Coach today – we’d be happy to help!
First Home Buyers Australia
Did you know?
Did you know that you can protect yourself from a rate rise as a mortgage borrower? A fixed rate home loan allows you to lock in an interest rate for a period of time, such as 1 year – 7 years. This gives borrowers certainty around home loan repayments. Fixed rates have been rising in popularity over the last few months. But how do you choose whether to get a fixed rate home loan or go with the more common variable rate home loan option? Click here to learn more about your first home loan options.