Reserve bank leaves cash rate on hold at 20 per cent

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THE Reserve Bank has left the official cash rate on hold at its historic low of 2.0 per cent for the fifth consecutive month, but homeowners are being warned not to grow complacent.

The central bank last moved in May when it cut the official cash rate by 25 basis points to its lowest level in history, following an earlier cut in February.

The RBA was widely expected to hold steady at todays meeting, with Governor Glenn Stevens saying recently he was pretty content with the current settings.

Its statement on its decision was only slightly modified from the previous month.

Comparison website Finder.com.au said all 31 economists and experts in its monthly survey predicted no change, with 94 per cent predicting the cash rate would remain on hold for the rest of the year.

However, three in five experts are tipping a rate rise in 2016, said Finder.com.au money expert Michelle Hutchison.

AMP Capital chief economist Dr Shane Oliver has tipped that the RBA could be forced to cut rates even further as low growth and spare capacity in the economy put downward pressure on inflation.

This could come as early as November, when the RBA will review its economic forecasts or early next year, he said in a note on Friday.

Its a view shared by ANZ, which broke ranks with its major rivals to predict that stubbornly high unemployment would force the RBA to cut rates as low as 1.5 per cent.

Pinpointing the timing of the cuts is tricky, but we are pencilling in 25 basis points cuts in February and May at this stage, ANZ economists Warren Hogan and Justin Fabo said in a research note last month.

Handful of changes in the #RBA statement, changes in red are what has been added/taken out form last month #ausbiz pic.twitter.com/Oq2DTumHZa

HOMEOWNERS URGED TO PICK UP THE PHONE

Ms Hutchison said figures from the Australian Bureau of Statistics showed record low interest rates had led to people borrowing more than ever before, with home loan sizes increasing to their highest ever levels in the last 12 months.

The national average home loan size is now $364,400 setting a new record and increasing by 10 per cent since July 2014, she said.

According to comparison website Canstar, the lowest standard variable rate available is 3.88 per cent, while the highest is 6.12 per cent. The lowest five-year fixed rate is 4.24 per cent, and the highest is 6.04 per cent.

Canstar finance editor Justine Davies said it was a mistake for borrowers to sit back and hope the RBA does the work for them.

Most people can save a huge amount of money, particularly if theyve built up some equity in their home, by going back to their lender and negotiating a hard bargain, she said.

If you know whats available, its a matter of going and saying, XYZ Bank down the road will give me this, what can you do to stop me from leaving?”

Ms Davies said most people treated a home loan as a set and forget thing and didnt want to go through the hassle of refinancing, but by making a phone call during your lunch break you could end up saving hundreds of dollars a month.

The trick is asking the question in the first place, she said.

For buyers looking at entering the market the message as always is to be careful. Dont get complacent about low rates and overextend yourself, Ms Davies said.

If you base your purchase price on whats only just affordable now, when rates go up 2 or 3 per cent youre going to be a basket case, both financially and emotionally.

While rates were widely tipped to remain on hold, she pointed out that we were entering a high change period over the past 25 years, November and December are two of the top three months for rate changes.

with AAP