RBA could 'remain on the sidelines' for the next few months
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Apr 30, 2019
RBA could 'remain on the sidelines' for the next few months
While a lowering of the cash rate is considered to be inevitable this year, Finsure Group Managing Director John Kolenda said the central bank will be "in no rush" to make changes when it meets early next month.
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SuppliedFinsure Group Managing Director John Kolenda
The need for additional economic data and a potential change in government could mean a pre-election rate cut is unlikely, according to Finsure Group Managing Director John Kolenda.
Pressure is mounting on the Reserve Bank to break its 32-month stalemate when it meets on May 7, with data from the Australian Bureau of Statistics (ABS) indicating consumer price inflation (CPI) was unchanged in the three months to March.
But Mr Kolenda said the recent stance of the RBA showed they would not easily succumb to market sentiment.
"While I believe it would be an appropriate time to reduce rates as early as next week due to all the recent economic data including low inflation figures and the continuing global headwinds, I think the RBA will remain on the sidelines for a few more months," he said.
"They want to see the impact of additional economic data and, of course, there is the May 18 federal election and a potential change of government.
"The central bank has maintained its holding pattern since August, 2016, so they will be in no rush to act until they deem it absolutely necessary.
"I still expect them to lower the cash rate from the current level of 1.5 per cent before the end of the year."
New research from Mortgage Choice showed that fixed rate home loans fell in March, accounting for 21% of all home loans written – a reduction of 1.38% from the month prior.
Mr Kolenda said it was important to remember that a rate cut was not solely dependent on a decision from the RBA.
"Although the RBA remains in its long-standing hold, banks are actually in a position to lower their rates independently of any decisions by the central bank," he said.
"Their funding costs have been falling and they could cut rates to offset some increases they imposed last year that were driven by rising funding costs.
"It’s still taking much longer to get approvals and, in many cases, find a suitable lender where a customer qualifies.
"The extremely tight lending regime has been frustrating for mortgage brokers with a significant increase in approval times."
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