Mortgage rate stays on hold, for now

Another sigh of relief for my back pocket as the Reserve Bank made a decision on Tuesday to leave the cash rate unchanged! Shortly before their Tuesday meeting the odds seemed to be on a rate rise, and the major banks sound like they were all very keen for there to be an increase – they are complaining about the higher deposit rates and lower mortgage rates that they are currently dealing with (and not liking). However, none of the major banks wanted to be “the bad guy” who put up interest rates despite the Reserve Bank leaving the rate unchanged, so that means that for now at least, we don’t need to pay out any extra for our home loan repayments.

However, the Reserve Bank’s statement did mention the high probability of a rate rise in the near future. The justification for leaving the cash rate as it was for October centred on statistics showing that the Australian economy is growing at “the trend rate”, meaning that nothing special needs to be done with interest rates to try to adjust the economic growth rate at the moment. But the outlook for the future is a little different:

If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target.

Combine that with the complaints of the banks that they can’t keep rates this low for too long and it would seem very likely that there will be an interest rate rise before the end of the year. The next Reserve Bank board meeting falls on Melbourne Cup Day again – they raised rates last year on this distracting day! – so it might be that we have just another month before our home loan repayments go up.

Discuss