The members of the Reserve Bank Board met for the first time this year on Tuesday 2 February and after considering December and January’s economic data, kept the official interest rate on hold at 2%.
Despite recent financial market ructions over concerns on global growth, the RBA would have drawn on this data to ascertain if growth is at risk.
Watch Martin Lakos, Division Director, Macquarie Private Wealth, discuss the RBA’s decision.
Today’s decision to keep the cash rate unchanged came as no surprise, with the Reserve Bank waiting to see what effect China’s slumping economy will have here in Australi
Eleven of the 29 experts surveyed by finder.com.au cited global financial uncertainty for keeping RBA on the sidelines saying the Australian economy did not need additional stimulus at this point in time.
Many expect close monitoring of events in China before any need to drop the cash rate.
Borrowers shouldn’t expect any further rate cuts this year.
More than half of experts (55 percent) forecast the Reserve Bank is unlikely to cut rates any further in 2016. The last cut was in May 2015.
However Bessie Hassan, Consumer Advocate at finder.com.au says one more drop shouldn’t be ruled out with the worsening economic environment in China yet to be felt in Australia.
“Nineteen percent of our panelists predict the rate could drop another quarter of a percent (to 1.75 percent) and a further 22 percent say a drop to 1.5 percent is possible in this cycle,” she says.
“A further downturn in China would leave Australia at risk of recession, the survey indicates. Sixty-eight percent of experts believed there was ‘some’ or a ‘strong’ chance a Chinese recession would lead a recession in Australia.
Seven percent downplayed a Chinese economic crash saying Australia wouldn’t be at risk.
The experts were divided on whether the recent slowdown in China’s economy would impact on the Australian property market.
One in four experts (25 percent) said foreign investment would cool, slowing the growth of Australian property prices. Twenty-nine percent were optimistic it would not have an effect on Australian property prices, although foreign investment would slow.
One quarter (25 percent) of experts said the current level of foreign investment in the Australian property market would not change as a result.
“The Australian property market is not one entity and the jury is out as to how much influence Chinese foreign investment has on property prices,” says Ms Hassan.
Regardless, borrowers are encouraged to do their research when considering buying a property or refinancing.
“Now is the perfect time to investigate your borrowing options as interest rates could start to go up sooner rather than later,” she says. “One in four (28 percent) of experts forecast a rate rise in 2016, with 52 percent expecting a rate rise next year.
“We also can’t rule out a repeat of the out-of-cycle rate hikes we witnessed late last year.
“With rates forecasted to start this climb, it’s time to crack down on your home loan repayments. Any portion of your principal you can get rid of now is a portion you’ll avoid paying interest on once your repayments increase.