RBA remains firm on 2 per cent cash rate

While the victor in yesterday’s Melbourne Cup may have come as a surprise to some, Reserve Bank of Australia (RBA) Governor Glenn Stevens’ announcement that the official cash rate (OCR) would remain on hold at 2 per cent did not.

The decision to hold the rate is good news for mortgagors or those considering a home loan, after last month when the big four banks opted to raise interest rates independent of the RBA.

Commenting on the moves by major lenders, Mr Stevens noted that the low OCR is still acting to support borrowing and spending. “While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative,” he said.

Business leaders have responded kindly to the RBA’s November rate decision. Alan Joyce, Qantas chief executive, observed that the falling Australian dollar has seen parts of the Australian economy, including tourism, strengthening, and says “the RBA are making the right call to ensure we have a competitive dollar”.

As for where the RBA will take the OCR from here, opinion is divided. In the recent Australian Housing Outlook 2015-2018 report, analysts from QBE speculate that the RBA will keep interest rates low as the economy transitions away from the resources boom into other business investment. As employment growth ramps up, QBE believes the RBA will begin tightening interest rate policy through 2016/17.

In an interview with Fairfax however, retail billionaire Gerry Harvey posits a different perspective. “I still think rates are headed lower. My belief is that they’re headed toward 1 per cent and not 3 per cent,” he said.

There are still plenty of positive signs for those in the home loan or property investment loan market. With no indication that the RBA will raise the OCR any time soon, major lenders have less of a reason to look at raising their own rates again.