When will the RBA finally make a move?

The RBA met this week and, as expected, rates remained unchanged and have done since May 2015.

08 Feb 2016 | Home finance & property | Share:
8 Feb
When will the RBA finally make a move?

However, this doesn’t mean they’ll stay the same for the rest of the year – in fact a survey conducted by comparison website finder.com.au, found one in three experts expect a rate rise this year, and more than half are predicting a rise within the next two years.

While home owners and property investors know that a rate change can mean an increase or decrease in their mortgage payments, very few understand what can cause a rate change. Here’s a look at a couple of the key factors that may influence rates this year so you can keep an eye out.

A Buoying Economy

Media reports over the last 12 months have spoken at length about the end of the mining boom and the need for Australia to find a new source of economic growth. Well, the first signs could be on the horizon. The RBA board, in its recent announcement did hint that “available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued”. While we can’t assume this means the economy is going to recover to the glory days of 2014 when the boom was in full swing, signs of recovery are there.

A Shrinking Economy

On the other hand, concern about deteriorating economic growth could force the RBA to cut rates further. It’s no secret that some of the world’s biggest markets, like China, are struggling so the RBA needs to be wary of the roll on effects.

Oil Prices

The plummeting cost of oil is making it incredibly hard for the RBA to influence inflation. In less than a year the cost of a barrel of Texas gold has dropped from over US$60 to half that. Petrol has become such a regular expense for the majority of Australian households that a price drop like that is putting more cash in back pockets, effectively acting as a rate cut. The RBA needs to be wary of what oil prices could do when making a call on the Official Cash Rate.

House Prices

While house prices don’t have a direct effect on the Official Cash Rate – the current property markets in Sydney and Melbourne will still be playing heavily on the RBA’s mind. Loan to income ratios are relatively high – according to ABS data they are currently in excess of 170 per cent of disposable income – so any rate increase or decrease needs to consider the implications on the nation’s borrowing habits.

Global Influences and the Dollar

Global demand for Australia’s natural resources, and the price we can charge for them, also have a big impact. It’s simple; if our main foreign trading partners experience strong growth then the price they are willing to pay for our goods goes up and the economy grows. This is of particular interest given the Australian dollar is currently low – meaning interest in our exports is high.