News

May 02, 2019

Predictions for this month’s cash rate call

The latest round of inflation data indicates there’s grounds to cut the official cash rate, but will it go ahead? The head of a national brokerage gives their predictions.

John Kolenda, managing director of Finsure, said that according to recent economic data, which includes low inflation and housing credit, the RBA does have grounds to cut the cash rate down even further from the all-time low of 1.5 per cent on 7 May.

“While I believe it would be an appropriate time and a relief to mortgage holders to reduce rates as early as next week due to all the recent domestic economic data and the continuing global headwinds, I would not be surprised if the RBA remains on the sidelines for a bit longer, although it’s a line ball decision,” Mr Kolenda said.

“They will 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, but there has been some compelling evidence for them to finally get off the fence.”

Regardless if the cash rate is cut or not in May, Mr Kolenda does expect the cash rate to be lowered past the election.

“With further evidence of a slowing economy coming out of the latest RBA data showing a pronounced reduction in housing credit, it adds even more weight to reduce rates sooner rather than later,” he said.

Mr Kolenda reminded rate watchers that rate cuts were not just dependent on the RBA, with banks being able to change rates out of cycle.

“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,” he said.

He added that lending conditions are still tight as lenders are scrutinising the living expenses of borrowers when applying for a loan.

“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,” Mr Kolenda said.