The Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% with the last rate move back in August 2016. I’d like to share today’s rate announcement and the thoughts on why the Reserve Bank of Australia has made this decision.
The economy appears delicately poised with slow wages growth, low inflation, a slowing housing market, tighter lending policies and high levels of household debt now leading some economists to believe that the next rate change could be down.
Another emerging factor is lenders making ‘out of cycle’ rate increases. The term ‘out of cycle’ refers to lenders increasing rates independently of the Reserve Bank. Gone are the days when lenders relied almost entirely on customer deposits and domestic short-term borrowing, pegged against official RBA rates to fund loans.
Regulatory changes designed to strengthen the banking system have also seen the amount of capital lenders are required to hold increase, which means they have had to look to more expensive sources than their own balance sheets to fund loans.
The interbank ( cash ) rate is just that, the rate at which the commercial banks deal exchange settlement funds bet
Australian lenders are confronting the same dynamics of rising cost of funding and a weakening lending market. They have much more complicated funding structures including accessing offshore wholesale and securitisation markets.
The next meeting will be held on Tuesday 2nd October 2018