Why it makes sense for RBA to slash rates in its next move

Many industry watchers believe the Reserve Bank of Australia has no other choice but to hold the official rate at historic low levels as lenders started independently raising mortgage rates in an out of cycle interest rate hikes.

In an Australian Broker report, 1300HomeLoan managing director John Kolenda said lenders had to raise their own rates to alleviate the cost of funding pressures.

"The increases in rates independently of the RBA means the official rate will be staying on hold with a future downward movement from the central bank now much more likely than a rate hike," he said.

Westpac was the first big bank to raise mortgage rates. Suncorp and Adelaide Bank followed suit, raising rates on several of their mortgage products.

UBS analysts said other banks will have to be cautious around out-of-cycle hikes, especially as the ongoing investigations by the banking Royal Commission.

“If the major banks all reprice their mortgage books, one response from the Government may be to increase the Bank Levy," they said, adding that this had happened before in the United Kingdom.

Meanwhile, a survey cited by Australian Broker revealed that 88% of experts are convinced that the next move of the central bank will be upwards.

Industry watcher Graham Cooke said the official cash rate is likely to remain at 1.5% for the rest of the year and part of 2019.

"It’s widely believed the cash rate will remain stagnant for some time now, but this hasn’t stopped lenders from lifting rates independently of the Reserve Bank, which we witnessed late last week," he said.