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Interest Rate Update – April 2016

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

Notwithstanding a strong Australian dollar the RBA remains comfortable with a contained inflation rate and a slowly improving labour market. Business credit has expanded (0.7% for the month of February) resulting in an annual growth rate of 6.5% (up from 5.5% for the year to February 2015). Housing credit remained at 0.5% for February (7.3% for the year compared to 7.1% for the prior year). The Australian Industry Group manufacturing index also delivered positive news last Friday morning showing an improvement of 4.6 points to 58.1 – the highest level since 2004.

Whilst we remain confident the cash rate will be left untouched for the remainder of 2016 the RBA will keep a close eye on a strengthening Australian dollar.

 

Interest Rate Update – March 2015

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Cash Rate – No change

The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.25%.

Following last month’s RBA decision to reduce the cash rate by 0.25% for the first time since August 2013, the RBA decided to defer any action so as to better understand the effects of the decrease before it again reduces the cash rate in another month or two . The RBA is hoping last month’s drop was a clear message to Australian businesses that it is time to improve their appetite for risk and invest more in new staff and equipment.

Interest Rate Update – March 2016

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The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

It may be Super Tuesday in the United States but it is also a huge week for local financial data, including the GDP figures for our last quarter. The Bank will prefer to assess this information to see just how the domestic economy is performing in the early stages of this year.  Whilst the market is currently forecasting a 60% chance of an interest rate reduction by May we remain confident the RBA will leave the cash rate untouched for the remainder of 2016.

 

Case Study: Selling a property with a fixed rate loan

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First Point Group always work to find the best possible outcome for our clients. In this case study, Kate had a $300,000 fixed rate home loan, and a $400,000 variable home loan ($700,000 total).

Kate sold her home, but had not yet found a new property to buy. She was happy to rent for a little while, and the sale amount was sufficient to repay all debts.

In most cases, a variable rate loan can be repaid without any significant fees or penalties. The key issue for Kate is that repaying / closing a fixed rate loan can be extremely expensive due to Lender “break costs”.

The break cost associated with a fixed rate loan is essentially the Lender’s way of passing their “future losses” onto you if you break the fixed rate contract early.

In this case study, Kate’s fixed rate still had 2 years left to run, and since interest rates had fallen since the loan was taken out, the Lender was set to effectively lose X% interest for those remaining 2 years. That cost would normally be passed onto the Borrower if/when the loan is paid out. In this case the amount was just over $8,000.

Therefore it was imperative that we find a way to enable Kate to sell the property BUT keep the fixed rate loan open, to avoid that break cost.

Despite Kate’s lender not being a regular “big 4 bank” or even a deposit taking bank, First Point Group were able to negotiate for Kate to offer $300,000 of the “cash” from the property sale to secure the fixed loan for a short period of time until her next property purchase occurs.

As a result, the fixed rate loan remains open, and Kate did not have to pay the $8,000 break fee.

When Kate purchases her new property, the $300,000 cash will be released and put towards the purchase. At the same time, the new property will become the security against the $300,000 fixed rate loan.

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Interest Rate Update – October 2015

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

The RBA remains comfortable to provide a period of stability, to allow business and consumers some certainty over the coming months particularly following the recent change of political leadership. The financial markets are currently pricing in the next change in the cash rate for December with a 0.25% reduction. Unless there is significant untoward domestic and global economic data it is our view the RBA will hold the cash rate at 2.00% for some time.

Interest Rate Forecast

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Australia – Interest Rate Forecast for 2016

Interest Rate Update – August 2015

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The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.00%.

The decision has been influenced by a low Australian dollar (currently under 73 U.S. cents), a low inflation rate which still falls short of the RBA’s target range of 2 to 3 per cent and a relatively stable unemployment rate of 6.0 per cent.

Although the RBA’s broader economic outlook will be released in its quarterly monetary policy statement on Friday it is unlikely we will see a change to the cash rate before the end of the year.

Interest Rate Update – May 2015

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The Reserve Bank of Australia (RBA) has announced it will reduce the official cash rate by 0.25% to 2.00%, the lowest in recorded history.

Following last month’s RBA decision to leave the cash rate on hold with a very “dovish” tone in their issued minutes the RBA has now decided to reduce the cash rate by 0.25% to endeavour to stimulate the economy further, likely coupled with budget measures next Tuesday. Economic indicators remain mixed with a sub-par growth economy, business outlook remaining soft, inflation under control and the Australian dollar remaining too high. On a positive note quarterly inflation (2.3% YTD) remains under control within the RBA band of 2–3%. Building approvals were also up 18% over the 12 months to March 2015.

Interest Rate Update – April 2015

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The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.25%.

Following last month’s RBA decision to leave the cash rate as is “for the time being” it has again decided to await more financial data before it decides on further action to try to boost the domestic economy. The next quarterly inflation figures are due to be released at the end of this month together with another full round of monthly data. The RBA will then be able to digest this information in order to understand both the impact of the February rate cut and the falling iron ore price before another cash rate reduction, possibly in May.

Cash Rate Update – December 2014

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The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.50%, marking the first full calendar year on record without adjustment.

Australia’s economic outlook has not changed significantly over the past month and despite the slump in the dollar in November the TD Securities/Melbourne Institute monthly inflation gauge rose just 0.1%, as increases in the price of fruit and vegetables were offset by lower commodity prices.

The global economy outlook has also seen little variation over this recent period. The US economy is recovering, albeit very slowly. Chinese economic growth is modest and much of Europe continues to be of concern with high unemployment and a looming risk of deflation. The unstable situation in Eastern Ukraine together with the efforts to combat ISIS in Iraq and Syria continue to pose threats to the recovery of the world economy.

It is clear that the RBA will prefer to wait for positive signals on the domestic and global outlook before raising the cash rate, an outcome not expected until the second half of 2015.