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RBA holds rates at 1.5pc, as expected

Glenn Freeman  |  04 Sep 2018Text size  Decrease  Increase  |  
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Reserve Bank of Australia interest rates economy monetary policy

The Reserve Bank's decision to leave the cash rate at 1.5 per cent pushes to 25 months its record period of interest rate inertia.

RBA Governor Philip Lowe again called out weak household spending as a source of uncertainty for the economy and a factor in the RBA board's decision to leave the official interest rate at its current record low.

He also referred to recent mortgage rate increases by Australian lenders and easing conditions in Sydney and Melbourne housing markets, although he says the average mortgage rate paid is lower than a year ago.

In a move anticipated by Morningstar's David Ellis, Westpac (ASX: WBC) became the first of the big four to stage an out-of-cycle rate hike.

This move further reduces the likelihood of any near-term interest rate tightening by the RBA. Most pundits suggest the next move - most likely upward - won't be until at least 2020. 

In response to Westpac's rate hike last week, Peter Warnes, Morningstar's head of equities research, said: "The other three banks will follow, putting more pressure on leveraged households. Consumption, retail, arrears and asset impairments will be affected. The RBA’s job done".

According to RBA's Lowe: "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," Lowe said in a statement.

"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."

Westpac's recent 14 basis point (0.14 per cent) increase across its variable rate mortgage products helped the nation's biggest home loan lender close its 11-point gap in net interest margins.

The bank blamed funding costs for its decision to increase its variable mortgage rate by 14 basis points.

The RBA's last move on rates was a cut to its already historic low back in August 2016.

Australia's official interest rate averaged 4.53 percent between 1990 and 2018, reaching an all-time high of 17.5 percent in January 1990, before dipping to its current record low.

 

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Lex Hall is a Morningstar content editor, based in Sydney.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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