RBA cash rate steady at 1.5 per cent. What does this mean for you?

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The Reserve Bank of Australia (RBA) went into a meeting on the first of this month to discuss Australia’s cash rate, and came out with a decision to keep the rate steady at 1.5 per cent for an eleventh straight meeting.

So, why is this?

Economists suggest that wage growth continues to be slow, and debts are high, which means household spending is low.

Does 1.5 per cent sound low? Yes, it is. This is a historic low. In April 2012, the cash rate was 4.25 per cent, which was considered normal at the time.

But what does the RBA cash rate mean for you?

Will the cash rate affect my mortgage repayments?

The RBA meets monthly to decide on a cash rate in response to Australia’s current economic situation, and expected future growth. The RBA’s cash rate does affect whether lenders will increase or decrease their interest rate. Although the cash rate is not the only factor they keep in mind, lenders  also ensure investments are attractive and secure for their customers, their costs are covered, their rates are competitive and regulation requirements are met.

As the RBA has kept the cash rate stable this month, interest rates are unlikely to move significantly.

Will house price growth slow?

Part of the RBA’s decision to keep the cash rate low is to curb the risk of household debt associated with slow growth in wages, and a rise in house prices.

But regulations have recently been introduced to try to address rising house prices. The regulations were implemented to discourage people purchasing houses only for investment, which had been pushing up house prices, particularly in Sydney and Melbourne. Lenders have responded by increasing mortgage rates for investor and interest-only loans.

This seems to have had the desired effect of slowing growth in house prices in most parts of Australia, although the figures are yet to be seen. Price growth is expected to slow to around 5 to 10 per cent, compared with around 20 per cent last year.

What about the cash rate in the future?

The RBA cannot say what will happen to the cash rate in the future. Regardless, the RBA has confidence in Australia’s economic recovery, although this may be a gradual increase.

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