Mortgage holders were delivered an unexpected rate reprieve this week when the Reserve Bank opted to keep interest rates on hold at its board meeting on Tuesday.
Better still, most banks and lenders have indicated that they won’t lift mortgage interest rates independently of the RBA, despite much media speculation to the contrary.
RBA governor Glenn Stevens said the central bank had decided to leave the cash rate at 4.5% because they expected inflation – which monetary policy is designed to control – to remain within the target band of 2-3% over the near term.
It comes as a surprise to both mortgage holders and economists, the majority of whom were expecting the RBA to lift the rate by 25 basis points to 4.75%. A rate rise of 0.25% would have nudged the monthly repayment on a $300,000 mortgage up to roughly $2,070, an increase of around $50 per month.
Before borrowers get too comfortable, however, it’s important to note that Stevens indicated a move towards higher interest rates “at some point, to ensure that inflation remains consistent with the medium-term target.”
Economists and analysts have translated this to mean that the RBA may deliver a rate hike in four weeks time, at the bank’s November board meeting.
“November is still a possibility for a move, but much will depend on the quarterly inflation data [released] later this month. A hike seems more data-dependent than we thought," said Brian Redican, Macquarie Group senior economist.
‘‘I think that it hinges upon the CPI outcome, so it’s definitely not a done deal at this stage. We could actually have interest rates on hold for a lot longer than we thought.”
Before the RBA’s decision was announced this week, the futures market had priced in a 66% chance of a rate increase in October.
By Tuesday afternoon, the market had priced in a one in three chance of a rate rise in November.
Of the big four banks, ANZ, NAB and Westpac have all ruled out the possibility of increasing mortgage interest rates independently. Commonwealth has yet to make a decision, with a spokesperson only willing to confirm that “the Bank doesn't speculate on any movements and regularly reviews its rates.”
Industry analysts have forecast that lenders will use an RBA rate rise of 0.25% as an opportunity to increase their mortgage rates by 0.4%, although the government has already warned lenders against using a higher cash rate as an excuse to hit consumers with an extra interest rate hike.
"I don't think there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank," Treasurer Wayne Swan told ABC Radio this week.
Adds Leon Carter, National Secretary of the Finance Sector Union, “It’s clear that many Australians are feeling the burden of debt, the squeeze of rising interest rates and the major banks need to accept some responsibility for this trend. At a time of record bank profits and executive remuneration, it is hard to accept arguments that funding pressures warrant a rate rise.”