Another Rate Cut from RBA?

Many analysts and economists believe that the Reserve Bank of Australia (RBA) would likely not cut the overnight cash rate in the near future because of the release last week of the unemployment data which surprisingly went down to 4.9 per cent in April instead of the expected 5.3 per cent.

However, on Tuesday, RBA Deputy Governor Philip Lowe hinted at a Davos Connection forum in Melbourne that the non-mining sectors would need to create more jobs to contain unemployment and inflation should remain low as justifications for more rate cuts.

Mr Lowe said that there needs 0.75 to 1 per cent annual growth in the non-mining parts of the Australian economy to prevent any further rises in unemployment.

Justin Fabo, economist of ANZ, said that based on Mr Lowe's figure which suggests the addition of 15,000 jobs a month, it would be consistent with three more rate cuts of 25-basis points each in the coming months.

The different analyst forecasts and occasional hints from RBA officials create uncertainty about official interest rate movements which prompted more Australian borrowers to shift to fixed-rate loans in March. However, the movement happened before the 50-basis points cut made by the Australian central bank, which indicated that many mortgage holders may have locked into fixed rates too early.

According to the Australian Bureau of Statistics, 14.5 per cent of all home loans in March were fixed. It is the highest proportion since May 2008.

Declining wholesale interest rate pricing led some banks to offer fixed-rate loans of 6.3 per cent which was substantially lower than the average standard variable rates of 6.8 per cent.

"(Borrowers) fix when rates are about to go higher or when they see the fixed rates on offer look like good value relative to expectations of where variable rates are going to," The Sydney Morning Herald quoted ANZ housing economist Paul Braddick.

However, he pointed out that the March figure is still a very mixed view of the market across the different Australian states. He explained that while the West Australian economy was bullish, the east coast was bearish. Mr Braddick forecast that the market in eastern states, particularly Victoria, would even fall flat for the rest of 2012.

The growing borrower preference for fixed home loan rates led Westpac to follow its competitors and cut its rates to 5.99 per cent for 3-year fixed rates with package. It is the lowest level in three years and matches Commonwealth Bank's and National Australia Bank's rates. Only ANZ Bank has higher rate for similar package at 6.04 per cent.

"Competition in the fixed-rate market is particularly intense at the moment and there's no doubt that customers are looking to pick up the best deal that is possible, particularly given the recent cuts in standard variable mortgage rates," The Australian quoted James Yetton, group executive of Westpac's Retail and Business Banking Division.