The Reserve Bank of Australia (RBA) has today decided to keep rates on hold at the record low of 0.75% ahead of the traditionally busy Christmas retail period.
With the Australian economy also looking fragile due to factors such as continued low wages growth, the RBA could well cut rates again early in 2020. This year the RBA has slashed the official cash rate three times.
The decision to sit tight on the official cash rate also comes amid mixed economic data on the state of the Australian economy according to realestate.com.au chief economist Nerida Conisbee.
“Recently, there has been some positivity in economic data – inflation was slightly better than expected in September, property prices are starting to rise steadily, building approvals picked up a bit in some locations. Mining seems to be recovering – in particular coal and iron ore. This was matched by some more negative news – a slight rise in unemployment, low wages growth and very little growth in retail spending,” she says.
It’s a busy auction weekend for Melbourne. Picture: Andrew Henshaw / News Limited
“The overall consensus seems to be consistent with the RBA Governor’s assessment that the market had turned a ‘gentle corner’. Conditions aren’t strong, but they are less weak. For now, interest rates are likely to remain on hold over summer.”
Traditionally the RBA keeps rates on hold for the month of December in an effort to ensure a busy period for retailers ahead of Christmas and with retail sales being down for much of 2019, today’s decision was one the market had been anticipating.What do low interest rates mean?
But what is likely to happen to interest rates in 2020?
“While there are some positive signs, it is still likely we will see an interest rate cut in February, however it is likely other means will be undertaken to accelerate economic growth. The Budget in March is likely to include tax cuts and more infrastructure spending.
“Continued pressure will be on banks to relax lending. It is highly unlikely that we will go to negative rates and even quantitative easing appears increasingly unlikely.
“Global political and economic uncertainty will continue to be a drag on the economy. The US/China trade war’s impact on Australia’s economy will continue and this appears to be leading to some positivity for Australia.”How the USA & China trade war affects the Australian property market
What today’s decision means for home owners
Major lenders have for some time, failed to pass on rate cuts in full to mortgage holders which means that most Australians won’t get a festive cash bonus from today’s decision.
But in the wake of the Hayne Royal Commission, lenders are facing renewed competition and many are under greater pressure to offer better deals on home loans. Experts say home owners should shop around for a rate at the lower end of 3%.
Meanwhile, clearance rates in Melbourne and Sydney remain high at 77% as of Sunday, so for those looking to sell this holiday season could be profitable.