RBA holds rates at 1.5pc, as expected
The Reserve Bank's decision to leave the cash rate at 1.5 per cent pushes to 25 months its record period of interest rate inertia.
Mentioned: ANZ Group Holdings Ltd (ANZ), National Australia Bank Ltd (NAB), Westpac Banking Corp (WBC)
The Reserve Bank's decision to leave the cash rate at 1.5 per cent pushes to 25 months its record period of interest rate inertia.
RBA Governor Philip Lowe again called out weak household spending as a source of uncertainty for the economy and a factor in the RBA board's decision to leave the official interest rate at its current record low.
He also referred to recent mortgage rate increases by Australian lenders and easing conditions in Sydney and Melbourne housing markets, although he says the average mortgage rate paid is lower than a year ago.
In a move anticipated by Morningstar's David Ellis, Westpac (ASX: WBC) became the first of the big four to stage an out-of-cycle rate hike.
This move further reduces the likelihood of any near-term interest rate tightening by the RBA. Most pundits suggest the next move - most likely upward - won't be until at least 2020.
In response to Westpac's rate hike last week, Peter Warnes, Morningstar's head of equities research, said: "The other three banks will follow, putting more pressure on leveraged households. Consumption, retail, arrears and asset impairments will be affected. The RBA’s job done".
According to RBA's Lowe: "The low level of interest rates is continuing to support the Australian economy.
"Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual," Lowe said in a statement.
"Holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."
Westpac's recent 14 basis point (0.14 per cent) increase across its variable rate mortgage products helped the nation's biggest home loan lender close its 11-point gap in net interest margins.
The bank blamed funding costs for its decision to increase its variable mortgage rate by 14 basis points.
The RBA's last move on rates was a cut to its already historic low back in August 2016.
Australia's official interest rate averaged 4.53 percent between 1990 and 2018, reaching an all-time high of 17.5 percent in January 1990, before dipping to its current record low.
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Lex Hall is a Morningstar content editor, based in Sydney.
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