RBA leaves cash rate unchanged

RBA leaves cash rate unchanged

In a June 2 media release, Reserve Bank of Australia's (RBA) confirmed its decision to keep the national cash rate at 2.0 per cent.

Ultimately, the RBA Board concluded that Australia's economy isn't ready for a policy revision. The market has shown signs of expansion, but isn't as robust as it usually is when experts consider growth to be sustainable. 

How will this impact home loans? 

RBA keeps the cash rate low when it wants to encourage borrowing and spending.

Any experienced homebuyer knows that the national cash rate usually dictates what kinds of mortgage interest rates lenders will offer them. 

Basically, the RBA will keep the cash rate low when it wants to encourage borrowing and spending among consumers and businesses. From a mortgage lender's perspective, it makes more sense, competitively speaking, to keep home loan interest rates low.

Why? Many of you are probably looking for mortgage lenders that offer low interest rates. Compared to a high interest rate, a low interest rate will utlimately allow you to save more money over the time of your investment (that is, your home). 

How has the home lending economy responded to the cash rate? 

It appears that the RBA's decision is working. Figures from Deloitte's 2015 Australian Mortgage Report suggest that loan origination is set to expand between 6 and 10 per cent throughout the rest of the year. 

Building and home loan approvals also grew. Deloitte Access Economics partner David Rumbens provided further insight into this particular trend, and whether it's due to continue. 

"We anticipate the improvement in housing construction activity to extend through 2015 and beyond, with state governments working to reduce supply side constraints," said Mr Rumbens. 

It's likely that the RBA will keep the cash rate low for the rest of the year.

Will the cash rate remain steady? 

The RBA predicted that the Australian economy will be acting "with a degree of spare capacity" for the foreseeable future.

Essentially, the Board believes that business spending and other indicators of sustainable economic growth will remain tempered.

James Hickey, a Deloitte Financial Services partner, maintained that a steadily rising unemployment rate means that homeowners and others may hesitate to borrow due to a lack of confidence in their ability to pay back loans. Based on this information, it's likely that the RBA will keep the cash rate low for the rest of the year. 

What sort of loans should homebuyers acquire?

Whenever there's a general level of certainty regarding the national cash rate, and therefore home loan interest rates, homebuyers may gravitate toward taking out fixed home loans. 

For one thing, these packages eliminate speculation: Borrowers know exactly how much interest they have to pay over a set period of time. In addition, if interest rates across the market increase, homeowners are only required to pay the amount stated on their fixed mortgages.

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