Blog, Financial News, Interest Rates

So the RBA didn’t meet…

by Greg Hearn

Financial Physicist Update

Did anyone notice, that the RBA board did not meet on the first Tuesday of March (the 5th)? Funnily it wasn’t in the mainstream news cycle and other than a few special money publications it wasn’t really mentioned. Did we miss them? Actually probably not. Although I did notice at least one of my broker mates asking the question what would be the outcome of the meeting on Tuesday (I gently pointed out they weren’t meeting).
 
As was announced last year the RBA have moved their meeting cycle to a sort of 6 week spread. So whilst they met at the beginning of February they don’t meet again until the 18th and 19th of March and then the 6th and 7th of May (the first Tuesday of May). So what borrowers and consumers and spenders and even savers. In my opinion what will happen is the 0.25% rate changes will become 0.5% rate changes. In my cynical view, somehow the big banks had something to do with this and they would say it is their more time to assess changes that need to be made, and implement them, and of course would save them some money in sending out letters which they are obligated to do for all borrowers. But that is my cynical view.
 
So I am going to say it here and make an early call (I think it’s a safe one) the outcome of the next meeting will be no change.
 
Will it be correct, given history says no I’m going to say no. Why do I say that? Because the RBA board have a history of making calls too late and for too long. History, will say in our rate rises that we had 2 too many. And history will in time say that they should have cut earlier because the economy has tanked. So realistically we should be having a rate cut in May, but it possibly wont happen until as early as June but more likely August or September which will be too late.
 
Conversations I have with people (and I have a lot), confirm the view that spending is really tight. That is people are actively looking for ways to not spend money or better put save money when they do spend it. A conversation I had with one of my clients who is in the very pointy end of retail confirmed that whilst we still buy groceries we are buying cheaper products or buying more products when they are on special. I think we’ll also see a lot more people going to Aldi and Costco for the slightly cheaper cost. When I need to travel to Canberra, we regularly go to Costco and buy things in bulk and we have seen significant savings from our grocery bill. I actually really should go to Aldi but I find like many others the temptations in the middle aisles are too good to pass up. We also have the added benefit of a really abundant vegetable garden that has delivered over summer and I am looking forward to planting some winter veggies in the coming weeks.
 
So in case you didn’t realise it, there are no more interest rate rises in this cycle. Is it time to fix, no. We are seeing some discounts from the small lenders and there are certainly reductions in fix rates but at the moment the difference between fixed and variable rates can be easily swallowed up with two rate reductions (in the old scale of 0.25%). So for this reason alone we do not believe fixing is worthwhile at the present point in time.
 
If you have any further questions about this blog, please feel free to respond or call me at 0421 689 999.

Greg Hearn

Greg Hearn

Principal Greg Hearn, an award-winning professional with over 30 years of experience working for and with many of Australia’s largest banks and finance lenders providing residential, commercial as well as plant & equipment finance.

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