RBA leaves cash rate on hold at record low

THE Reserve Bank has left the official cash rate on hold at its record low of 1.5 per cent for its first meeting of 2018, marking 18 months in a row without a change.

The RBA last cut the cash rate in August 2016, following an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

Economists and experts widely predict rates to remain on hold throughout most of the year. It comes as housing markets, particularly in Sydney and Melbourne, continue to cool.

"With national dwelling values now drifting lower, the RBA can now focus more on economic trends outside of the housing market when contemplating monetary policy settings," CoreLogic head of research Tim Lawless said in a note.

The property research firm's index showed national dwelling values have fallen by 0.7 per cent from their peak in September last year, largely as a result of tighter credit conditions hitting investors.

"Despite the stable cash rate, investors have seen an average 40 basis points increase in their mortgage rates due to higher capital requirements from lenders, which has helped to slow investment demand and quell rapidly rising home values," Mr Lawless said.

"Interest rates won't stay at their record lows forever. Financial markets have fully priced a 25 basis point rise by February next year.

"In the meantime, we expect housing market demand to be supported by low mortgage rates and high rates of population growth, despite the easing in capital growth rates that have been most evident in Sydney and, to a lesser extent, Melbourne dwellings."

According to comparison website Canstar, the average basic variable home loan rate for an owner-occupier is now 4.21 per cent, the average standard variable rate is 4.45 per cent, while the average two-year fixed rate is 4.02 per cent and the three-year fixed rate is 4.09 per cent.

"Irrespective of the cash rate, if you are an owner occupier making principal and interest repayments home loan interest rates have been on the way down since Spring," Canstar group executive financial services Steve Mickenbecker said in a note.

"Seventy loans have moved down in the past two months. Rates are the lowest in living memory. Fixed rates are coming back, with ABS data showing fixed rate loans standing at 15.8 per cent of total loans in November 2017, compared to 11.4 per cent two years earlier."

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