The RBA last cut the cash rate to its record low of 1.5 per cent in August 2016, after an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.
“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low,” RBA governor Philip Lowe said in his statement.
Housing credit growth has declined to an annual rate of 5.5 per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed.
“Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality.”
It comes after data released by research firm CoreLogic showed national house prices fell at the fastest pace since 2012 in the year to July to land 1.9 per cent below their September 2017 peak.
“The steady rate setting has a lot to do with stubbornly low inflation, record high household debt, a slack labour market and, more recently, falling dwelling values,” CoreLogic head of research Tim Lawless said.
Experts believe the cash rate will remain on hold until at least January 2020. Mr Lawless said over the past two years, the average standard variable mortgage rate had actually fallen by five basis points for owner-occupiers but increased by 30 basis points for investors.
“Three-year fixed rates for investors have increased by 10 basis points and discounted variable rates are up 40 basis points for investment loans,” he said. “Additional mortgage rate premiums are payable for borrowers who aren’t paying down their principal.
“Clearly the stability in the cash rate hides a deepening complexity in mortgage products brought about by the heightened level of regulation and focus from both lenders and policy makers on improving credit quality.”
Finder.com.au insights manager Graham Cooke said a number of smaller lenders had been lifting their rates out of cycle with the RBA.
“With no cash rate movements for two years now, and funding requirements for the larger banks becoming more stringent, the pressure on lenders to increase home loan interest rates is real,” he said.
Canstar finance expert Steve Mickenbecker said the increases due to higher wholesale funding costs had been about 0.1 per cent, but “what is noteworthy is that the changes flow through to existing customers, not just new borrowers”.
“As variable rates are starting to show upward pressures, many lenders have introduced competitive introductory rates and fixed rates,” he said.
AMP Capital chief economist Dr Shane Oliver said the next interest rate move would likely be up but not until 2020 at the earliest and there was a “rising risk that the next move will actually be down”.
“The RBA’s own forecasts for decent growth and a gradual rise in inflation along with strong infrastructure investment, rising business investment and strong export volumes argue against a rate cut,” he said in a client note.
“But the peak in the housing construction cycle, uncertainty about the outlook for consumer spending, the weakening Sydney and Melbourne property markets, low inflation and wages growth and tight bank lending standards all argue against a rate hike. So the stand-off continues.”
A number of major banks have recently downgraded their forecasts for the Australian housing market. NAB predicts house prices will flatten in 2020, with a peak-to-trough fall of 6.5 per cent in Sydney and 2.5 per cent in Melbourne.
ANZ said it expects to see peak-to-trough declines of about 10 per cent in both Sydney and Melbourne in the same period, while Dr Oliver believes Sydney and Melbourne will see declines of 15 per cent while the national average will fall by 5 per cent.