Another rate cut is coming on Tuesday – or is it?

The Reserve Bank of Australia board meets on Tuesday 2 July to decide whether to cut interest rates for the second month in a row or leave them where they are right now. The official cash rate is currently set at 1.25 per cent, the lowest setting since the RBA began publicising its interest rate settings 30 years ago.

All four big banks have predicted the Reserve Bank will cut the official cash interest rate in July. The RBA Governor, Philip Lowe has strongly indicated that more rate cuts are on the way in 2019.

BUT, futures markets are not so sure about the certainty of a rate cut next week. The cash rate futures market had priced in a 90 per cent chance of a rate cut next Tuesday but expectations have since cooled to 70 per cent today (Friday).

The graph from the ASX shows the fluctuating mood of the interest rate futures market.

The RBA traditionally does not implement two rate cuts in consecutive months. Since 1990, the Reserve Bank has cut interest rates 46 times, but only 12 of those instances came just one month after the previous cut, according to research from the Australian Financial Review. Five of those consecutive cuts were in 2008 as the RBA responded to the Global Financial Crisis.

So history tells us that the Reserve Bank doesn’t like to cut rates two months in a row, except in economic ‘emergencies’ like the collapsing housing and financial markets of 2008.

Morgan Stanley economist Chris Read is predicting no rate cut in July because the RBA preference is usually for a gradual cutting cycle.

“The door is still open to a pause in July,” said Mr Read.

Even though Westpac senior economist Bill Evans has recently changed his position and is now predicting a July rate cut, Westpac’s senior currency strategist Sean Callow says there may be space for the RBA to wait and see.

“If the (US) Federal Reserve takes its time, then the race to the bottom on interest rates is not as frantic,” said Mr Callow

“The pressure to cut rates may in turn ease for the RBA and help buy them some time,” he told the Australian Financial Review this week.

Many experts are pointing to the possibility that banks and credit unions will generally not pass through future RBA rate cuts in their entirety because of the very low level of interest rates.

Right now one of the most competitive variable home loan rates in the market is Athena’s 3.34 per cent headline rate for refinancers.

Greater Bank has a one year fixed headline home loan rate of 2.99 per cent as does UBank.

Among savings accounts, Suncorp’s Growth Saver is among the market leaders with a current max rate, including bonus, of 2.30 per cent.

You can trust InfoChoice to help you compare the top home loan products and the best savings account products from Australia’s banks, credit unions, building societies and non-bank lenders.

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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