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‘Imminent’ RBA cut to ‘validate’ low-rate environment

Stephen Koukoulas, anaging director of Market Economics

The recent wave of out-of-cycle mortgage rate reductions is expected to be entrenched by a cut to the official cash rate, which some analysts predict could come as early as next month.

Over the past few weeks, several lenders, including the major banks, have announced cuts to their fixed-rate home loans of up to 40 basis points, including NAB, CBA, Westpac, Virgin Money, Heritage Bank and Bendigo Bank.

Others – including Macquarie Bank, ME, HomeStart Finance, Teachers Mutual Bank and Adelaide Bank – have also slashed their fixed rates in recent months, by as much as 92 basis points.

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The reductions have come in response to easing funding cost pressures, which prompted out-of-cycle variable mortgage rate hikes throughout 2018 and the early part of 2019.

Meanwhile, the Reserve Bank of Australia (RBA) has held the official cash rate steady since it was cut to 1.5 per cent way back in August 2016.

Some analysts, however, including managing director of Market Economics Stephen Koukoulas (pictured), expect the central bank to pull the rate lever sooner rather than later.

“We’re going through a period where official interest rates are probably going to go to 1 per cent, if not lower, and off the back of that, we’re going to see fixed rates, variable mortgage rates [drop] over the [following] six months,” he told My Business’ sister title Mortgage Business.

When asked when he expects the RBA to cut rates, Mr Koukoulas said a cash rate cut in May is likely in light of flat inflation growth, with the latest consumer price index (CPI) from the ABS reporting no movement (0.0 per cent) in the March quarter of 2019.

“One of [the RBA’s focuses] is the inflation rate and the fact that it’s been below the bottom of their target for, I think, three years now, means that the risk of over-stimulating the economy is just not there,” he said.

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Mr Koukoulas sought to quash concerns over a second boom in the housing market if the official cash rate was to be cut.

“We know housing is markedly weaker,” he continued.

“House prices are still soft in Sydney, Melbourne and most of the country, so the idea that they’d rekindle the housing boom or see inflation go to the top end of the target range, I don’t think is a concern for them.”

Mr Koukoulas’ sentiment was echoed by chief economist at AMP Capital Shane Oliver, who, after assessing the latest CPI data, said that a rate cut from the RBA would be “imminent”, revising his initial forecast of reductions in the back end of 2019.

“We have been looking for two rate cuts this year since last December and had thought that the RBA would wait till after the election before starting to move,” Mr Oliver said.

“However, with underlying inflation coming in much weaker than expected, our base case is now that the first cut will come next month, with the RBA likely to conclude that it’s too risky to wait until unemployment starts to trend up.”

The RBA’s next monetary policy board meeting will be held on Tuesday, 7 May.

Adam Zuchetti

Adam Zuchetti

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at This email address is being protected from spambots. You need JavaScript enabled to view it.

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‘Imminent’ RBA cut to ‘validate’ low-rate environment
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