In a move that was widely anticipated and almost fully factored in beforehand, the Reserve Bank of Australia (RBA) cut the official cash rate for the second time this year, this month to a record low of 2.50%. Bloomberg data tells me the previous lowest (equivalent) official cash rate was 2.93% back in February 1960. As a result, professional swap rates (one to three years) fell to new record lows to present a tempting case for borrowers to consider locking-in fixed rates.
Following the move by the RBA last week, a follow-up rate cut in September is highly unlikely as the RBA would want to wait at least until the release of the September quarter CPI data in late October. This means that November is the next likely “live” meeting for a rate cut, which will also be after the Federal election.
I note that a recent survey of economists shows that the median view is for a 2.25% terminal cash rate with no-one forecasting cash with a 1% handle but some seeing cash at 2% before year-end. Also, there are some economists forecasting the RBA to start increasing the cash rate in 2014, but that’s a little premature in my view.