Experts tip interest rates to remain on hold

2. April 2015 10:54  /  swanvalleyrealtyblog Comments (0)

The following article is by Kate Jones and was published on the realestate.com.au website on 1st April 2015;

Interest rates are widely tipped to drop again this year, but experts say it won’t happen in this month.

The Reserve Bank of Australia is likely to keep rates steady at its monthly board meeting as it takes a watch-and-see approach to the economy.

Kirsty Lamont, director of finance comparison website Mozo, says the RBA is still judging the impact of its 0.25 per cent rate cut in February.

“I expect the Reserve Bank to cut rates again in the first half of this year, but having said that April will be too early,” she says.

“The Reserve Bank is still watching how the February rate cut will flow through the economy.”

 While rates are low, smaller lenders hold more sway in the finance market. This means homeowners have a golden opportunity to secure a low home loan rate and get stuck into paying off their mortgages, says Lamont.

“Pay down as much of the home loan as possible because interest rates are at record lows,” she says.

Fierce competition in the lending market has prompted more homeowners to leave the big four banks for lesser-known lenders, Lamont says.

“There’s a real gap between the best rates on the market and those offered by the big four,” she says.

“That gap is almost 1% and that makes a huge difference. A lot of people are switching from major lenders to small lenders like challenger banks and online lenders.”

Financial planner Scott Haywood says surging property prices in Melbourne and Sydney will influence the RBA to keep rates on hold in April.

 “The Reserve Bank made it clear they’re concerned about property prices in Melbourne and Sydney with clearance rates over 80% (on the middle weekend in March),” he says.

“So to cut again now after such a high clearance rate would be too aggressive.”

The RBA remains concerned about business and consumer confidence with governor Glenn Stevens telling the American Chamber of Commerce in Australia recently: “Australian businesses and households seem to be getting less optimistic about the future”.

Lowering interest rates will stimulate the economy, but Haywood says this cannot be done too quickly.

“A rate cut of 0.25% doesn’t have the power and impact on the economy as it did, say during the global financial crisis,” he says.

“But the Reserve Bank doesn’t want to spook or scare the Australian public by doing a 0.5% cut.

“As soon as it sees business confidence pick up, the cuts will stop.”

Haywood, who tips a 0.25% rate cut in May, expects unemployment to rise this year and the Australian dollar to continue its fall against the US dollar.