The Reserve Bank Board’s decision not to budge the official cash rate from 4.75 per cent today translates to prime time for home loan rate negotiations as the mortgage industry scrums for business, according to interest rate comparison website RateCity.
The Board held the rate steady due to several factors including a weakening Australian dollar, weak credit growth and declining asset prices, and uncertainty over a solution for Europe’s sovereign debt and banking problems.
Despite the lack of evidence illustrating the true economic impact on the Australian economy, the softening economic conditions in both Europe and the United States continue to reduce confidence levels here at home, said the Board.
Other factors influencing the cash rate decision include the downscaling of the global gross domestic product growth expectations for 2011 and 2012 and the recent weakening of commodity prices, despite remaining high.
The Board’s decision not to cut rates has been influenced by the still buoyant Australian economy including the very high terms of trade and increasing national income, escalating resource sector investment and “better than average conditions” for related service sectors.
Concern over a “pick-up” in inflation, despite weaker than expected economic conditions and softer labour market conditions, have led to the unlikelihood of jobs increasing outside of the resources sector, said the Board.
The decision to hold the official cash rate translates to rate cut negotiation opportunities for those buying and refinancing, according to RateCity chief executive officer Damian Smith.
“The mortgage market is still in the doldrums and lenders are keen for home loan business, so borrowers can really use this to their advantage and negotiate their way to a better deal,” said Smith.
Investors should use the rate move pause as an opportunity to get ahead on the home loan by increasing repayments, he said.
“By increasing repayments by just five per cent, or about $100 per month on a $300,000 home loan at a rate of seven per cent, borrowers could cut a 25-year mortgage term by almost three years and save close to $46,000,” said Smith.
“So for those with a stable income and that have saved for a deposit, now could be a good time to borrow.”
Housing Industry Association chief economist Harley Dale said this “widely anticipated” move to hold the cash rate for the tenth consecutive time wasn’t the right move, and a cut to rates would’ve been more appropriate given the low levels of confidence at the moment.
“Right now there’s a pre-emptive need to cut rates. It’s an entirely appropriate policy decision in late 2011,” said Dale.
