The Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5%. That is now two years since the last cash rate move. I’d like to share the recent rate announcement and my thoughts on why the Reserve Bank of Australia has made this decision.

With a combination of factors including very low wages growth, high underemployment, flattening property prices, home lending and modest inflation, many experts are predicting it may be some time before we see the next rate movement and it may actually be downwards.

Another emerging factor is lenders making ‘out of cycle’ rate increases. The term ‘out of cycle’ refers to lenders increasing rates independently of the Reserve Bank. Gone are the days when lenders relied almost entirely on customer deposits and domestic short-term borrowing, pegged against official RBA rates to fund loans.

Most lenders now have much more complicated funding structures including accessing offshore wholesale and securitisation markets. Regulatory changes designed to strengthen the banking system have also seen the amount of capital lenders are required to hold increase, which means they have had to look to more expensive sources than their own balance sheets to fund loans.