May rate cut looks odds-on, judging by RBA minutes
Financial markets expect another three cuts this year, following the bank’s first quarter percentage point rate cut in February.
ANOTHER rate cut in May now looks odd-on, judging by the minutes from the last Reserve Bank meeting.
But further reductions to the 4.10 per cent cash rate will be closely monitored by a cautious RBA, which was holding its first meeting of the newly formed monetary policy board.
Notes from that meeting reveal that members thought the May meeting was an “opportune time to revisit the monetary policy setting”.
That meeting – on May 19-20 – will have “the benefit of additional data about inflation, wages, the labour market and trends in economic activity, along with a fresh set of economic forecasts and further information about the likely evolution of global trade policies.”
Financial markets now expect another three cuts this year, following the bank’s first quarter percentage point rate cut in February.
But Governor Michele Bullock and the Board are clearly still cautious about unleashing a housing bubble. “Historical experience both in Australia and abroad suggested that periods of lower interest rates can coincide with riskier borrowing activity, a rapid increase in house prices and, at times, a relaxation of lending standards,” the minutes read.
“Members noted that the RBA and other regulators were attentive to vulnerabilities that might build in the financial system if households responded to an actual or anticipated easing in financial conditions by taking on excessive debt.”
The bank also noted that there was particular risk around property investors and their borrowing habits as opposed to owner occupiers.
“Historically, borrowing by investors had been particularly sensitive to changes in conditions in the mortgage market.
“The potential for this activity to amplify the credit and housing market cycle would be monitored closely.”
The RBA’s note of caution comes as Labor and the Coalition unveiled headline-grabbing housing plans to woo young voters who have been increasingly priced out of the property market.
One key policy shared by both political parties includes a government loan guarantee for first-home buyers who can only muster up a 5 per cent deposit for a home loan.
The bank has previously found, however, that mortgages purchased with a 5 per cent deposit are 50 per cent more likely to go into arrears compared to those who have paid 30 per cent of the house purchase upfront.
