Interest Rates

Whilst the Reserve Bank takes a break in January, leaving interest rates unchanged by default; a New Year is an opportune time to start to think about the financial health of your home loan, and check your interest rates against competitive financial institutions, there are some genuinely attractive packages in the marketplace that can save you thousands.

What is the outlook like for 2019?

Well, no-one has a crystal ball, and the industry commentators certainly don’t always get it right. What happens across the year will depend on various influencing factors including a possible change of federal government at the next election, consumer confidence, and even global factors, including the outcome of Brexit, for example.

The RBA’s purpose is to issue Australian currency and set our monetary policy; with the aim of keeping the Australian financial system stable and promoting economic prosperity for all Australians. They are well aware that changes in rates – up or down, have a significant impact, and historically banks passed on any increases or decreases to their customers. However, the landscape changed somewhat in 2018 with many lenders choosing to raise rates despite the RBA keeping rates on hold. This was partially attributed to the recent APRA crackdown on interest-only loans and the increase in the costs of borrowing funds in general.

The Australian cash rate has been historically low for the best part of the past decade, with it flat-lining on 1.5 per cent since August 2016, due in part to the continued world economic contraction that started with the GFC.

Over the past few years, numerous commentators have attempted to forecast the moment when the cash rate would move from its historic low, but most have been wrong. Last year, for example, with the economy improving via jobs growth and significant infrastructure spending, many forecasted that the RBA would up the cash rate in 2018, which has proved to be incorrect.

With property prices in our two largest capital cities softening while the economy kicks up a gear; however, whilst inflation is strengthening somewhat, it is still at the bottom end of the two to three per cent target range, making it unlikely that official interest rates will change any time soon.