RBA holds the cash rate at 1.75%

June 07, 2016
Melinda Halloran

After dropping the cash rate to 1.75% last month, the Reserve Bank of Australia was happy enough to keep rates on hold for June.

Factors affecting this decision include:

  • Better-than-expected GDP figures showing economic growth at 3.1%
  • The release of the June quarter CPI figures next month
  • The upcoming federal election

With growth higher than expected and the June quarter inflation figures set to be released at the end of July, the Reserve Bank has decided to wait before making any changes to the cash rate. Given that inflation has been below target recently, the data on the June quarter will be hotly anticipated.

Many experts are predicting that if there is another rate cut to come, it will be in August, following the release of this data.

"Inflation has been quite low," says RBA Governor Glenn Stevens. "Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time."

This latest decision by the Reserve Bank may come as a surprise to many borrowers, who are likely to believe the economy is in worse shape than it actually is.

Movements in global markets, fierce political campaigning in the lead up to the election and fears about the job market are all playing into this perception. But according to leading economists, even though inflation figures have been low, there is no sign of a recession on the horizon.

In the housing market, the Board has indicated it is satisfied with the effects of tougher lending standards, but there is concern about an oversupply of apartments in Sydney, Brisbane and Melbourne. 

How to take advantage of low interest rates 

Following last month’s cut to the cash rate – which has taken interest rates across the country to historically low levels – the majority of lenders passed on the full rate cut.

As a result, variable-rate home loans have been the most popular in May, accounting for more than two thirds of loans written last month. But regardless of whether you choose a fixed or variable home loan, the cost of borrowing is now cheaper than ever before.

Rather than pocketing the additional savings from last month’s interest rate cut, I recommend paying your mortgage as normal. This will help you to pay off your mortgage sooner, putting you on track to reach other financial goals, such as purchasing an investment property. And if your lender didn’t pass on the rate cut, now is a great time to see if you could save by refinancing.

The Brisbane property market stats you need to know:

  • Official cash rate: 1.75%
  • Brisbane median house sale price: $618,000*
  • Brisbane median unit sale price: $428,750*
  • Auction clearance rate: 58%
  • Best available variable interest rate: 3.88%
  • Best available fixed interest rate: 3.74% (for a two- or three-year term)

*These are the latest RP Data figures from April, 2016. They are based on the median prices in the Brisbane City Council catchment only.

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Posted in: Interest rates

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