Reserve Bank keeps rates on hold at February meeting

The RBA decided to keep rates on hold at the record low rate of 0.75% at its February meeting today.

The hold decision was generally expected, especially considering the increased uncertainty brought about by the extent of bushfires domestically as well as the unfolding implications associated with the Corona virus outbreak.

The RBA may need to keep some rate cutting ammunition up their sleeve should these scenarios play out more severely than expected.

To date, lower interest rates haven't flowed through to a material improvement in economic conditions, but housing markets have well and truly responded, with national housing values rising 6.7% since the first rate cut in June through to the end of January.

Importantly we may be seeing some early signs that strength in housing markets is transferring through to other sectors, with dwelling approvals recording their first annual rise since mid-2018 and the value of new mortgage commitments up 5.9% over the year to November, driven by a 10% increase in owner-occupier commitments.

Although rates remained on hold today, we are expecting the RBA to cut the cash rate later in 2020.  Further rate cuts could fuel home buyer demand, although we don't expect future cuts to the cash rate to be passed on in full to mortgage rates.

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