RBA holds cash rate at 4.10%

In a reprieve for Australian mortgage-holders, Reserve Bank board has maintained the official cash rate at 4.10% following its July monetary policy meeting.

The pause, which is only the second in the last 14 meetings, follows a slowdown in the growth of the Consumer Price Index during May - a result which, along with other factors, may have proven enough for the central bank to feel more confident about the direction of inflation.

In his post-meeting statement, RBA governor Philip Lowe indicated that while the impact of the previous rate increases were working their way through, inflation was still too high.

"The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month.

"Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline. But inflation is still too high and will remain so for some time yet."

Leading up to today's decision the consensus among experts had once again been divided, with separate pre-meeting surveys of economists and experts conducted by Finder and Reuters both indicating a 51% to 49% split in favour of a rate increase.

Evgenia Dechter, an associate professor at the University of New South Wales and one of the respondents to Finder's survey who predicted a pause, indicated that the Reserve Bank will be looking closely at the effects of previous rate rises.

"The decline in monthly CPI, the sluggish growth, as well as other indicators, suggested that the RBA should pause. Given that we haven't yet seen all the impacts of the recent monetary policy on the economy as it passes through with a delay, the RBA should tread slowly to assess the full effects."

Borrowers urged to negotiate a better deal 

While the outcome of today's cash rate decision will come as a relief to those paying off a mortgage, borrowers who are in a position to refinance are still being urged to engineer a rate reduction for themselves by contacting their existing lender or switching to a new one.

So far this year owner occupiers and investors have already refinanced more than $100 billion worth of loans, however, the general manager of money at Compare the Market, Stephen Zeller, says that there are plenty of mortgage holders who haven't attempted to secure a better deal.

"Just one-in-three Aussie mortgage holders have tried to negotiate a lower rate this year, according to our latest research.

"Amazingly, two-thirds of those that called their lender said they were successful in securing a discount. And if that isn't an option, shop around and see if another lender can offer you a better rate."

Given the high rate of success and the potential savings on offer, Zeller believes that talking to your lender or, failing that, being prepared to make the switch to a rival can certainly be worthwhile.

"If your variable rate doesn't have a '5' in front you could be spending more than you need on your repayments," he says.

"The difference between some of the advertised rates we analysed was 70 basis points. An owner-occupier with a $600,000 loan could save $269 per month by switching from a rate of 6.24% to 5.54%."

More rate hikes expected

Securing a lower rate and repayments may be even more crucial for mortgage holders given that today's pause isn't expected to spell an end to rate rises.

Only 12% of the experts polled by Finder thought that the cash rate has already peaked at 4.10%, while 64% expected that it would hit at least 4.35%. As for when, four in five respondents believed that the peak would come sometime between July and November.

In terms of the actual decision makers, Philip Lowe once again reiterated in his post-meeting statement that more action could be necessary in the months ahead.

"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."

The Reserve Bank Board meets for its next monetary policy meeting on Tuesday, August 1.

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