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RBA's next move on rates could be down rather than up as they keep them on hold for another month

07 February 2019

While the chaos of this week’s banking royal commission final report has attracted most attention in the finance industry, the RBA this week kept interest rates on hold at 1.5 per cent for another month in its first cash rate announcement for the year.

Economists are starting to think that the next rate move could actually be a cut rather than the hike that governor Philip Lowe has recently hinted at.

CoreLogic head of research Tim Lawless gave his thoughts on the announcement today when he spoke to Broker News.

“The hold decision was widely anticipated, considering a subtle uplift in CPI and steady labour market conditions, however financial markets are increasingly leaning towards the next move from the RBA being a cut rather than a hike,” he said.

“With CoreLogic’s January hedonic index revealing national dwelling values are falling at the fastest rate since the GFC, while Sydney and Melbourne’s rate of decline is now the most rapid since at least the early 1980s, there is the potential the RBA may be becoming less comfortable with the performance of the housing sector.”

“Add to this a consistent downtrend in dwelling approvals, weakening consumer sentiment and softer retail trade figures, and it looks like the household sector could start to weigh down economic growth,” he told Broker News.

Mr Lawless said the RBA may feel more comfortable cutting the cash rate in the wake of a number of smaller lenders lifting their own rates to cover increased funding costs.

Finsure managing director John Kolenda said he can see the RBA cutting interest rates after the federal election.

“There is increasing pressure on the RBA to lower rates, particularly when you weigh up all the negative factors which includes the coming federal election, the response to the final report of the Hayne Royal Commission, the falling property market and external matters such as the US-China trade war and Brexit,” he told Broker News.

“There are just too many headwinds at the moment.”

“You also have banks increasing their rates independently of the RBA due to cost of funding issues.”

“Consumer confidence is the strongest economic indicator and as we can see from downturns in retail spending, consumer confidence is lagging,” he said.

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