Less than three weeks after its emergency rate cut in March, Australia's central bank meets again today to discuss further cuts.
The Reserve Bank of Australia (RBA) met for a second time in a month for the first time since 1997, cutting the cash rate twice in a month for the first time ever to a new record low of 0.25%.
It also commenced a first-ever quantitative easing (QE) program, designed to help fund the Government's $200 billion-plus stimulus packages, as well as encourage banks to lend to potential borrowers.
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 August 2020. View disclaimer.
So will the RBA cut again today? Check out their decision here.
The short answer is: It's unlikely, but given the unprecedented times we're currently experiencing, nothing is impossible.
In the minutes of its emergency March meeting, the RBA said the cash rate had reached its floor and ruled out negative interest rates in Australia.
"Members also agreed that the cash rate was now at its effective lower bound," it said.
"Members had no appetite for negative interest rates in Australia."
Furthermore, the central bank said the cash rate would not be increased until progress towards full employment (4.5%) was made and inflation sat between 2-3%.
Given unemployment is tipped to hit 10%, and the Government's 'hibernation' of the economy for six months, it's likely the cash rate won't be moved for a long time.
NAB economist Rodrigo Catril said the RBA would hold steady today after a tumultuous previous month.
"After all the fireworks last month we don’t expect any surprises from the RBA today," Mr Catril said.
"The RBA is broadly expected to keep policy – the cash rate, yield curve control and QE – unchanged."
Westpac economists also said the RBA's emergency March minutes meant the cash rate would remain as is today.
"As such, the focus of RBA meetings will be on how the board assesses its QE measures and whether they may require adjusting," they said.
"For April we do not anticipate this requiring any adjustments."
Meanwhile, Bloomberg's monthly survey of top economists returned a unanimous 0.25% cash rate hold result.
The RBA's cash rate decision will be announced at 1430 AEST.
Survey of economist #RBA cash rate expectations, unsurprising to see 0.25% as far as the eye can see - @BloombergAU might be able to retire this part of the survey for the next few years... #ausbiz pic.twitter.com/eqCOoNRWXE— Alex Joiner (@IFM_Economist) April 3, 2020
What is the RBA doing if it's not cutting the cash rate?
You may be surprised to find out that for much of the past two weeks, the Australia's interbank overnight cash rate has actually been below the RBA's official cash rate target of 0.25%, even falling to as low as 0.10%.
As of 6 April, the interbank overnight cash rate was 0.18%.
That's because of the RBA's QE's measures which are designed to have the same effect as a rate cut without actually cutting the cash rate.
The RBA has so far purchased $29 billion of government and secondary market bonds, purchasing billions more each day.
The secondary market purchase is designed to flood the financial market with more money so lenders are encouraged to lend money, rather than sit on their hands.
These two measures push down Australia's cash rate, as the RBA is easing monetary policy by injecting huge quantities of cash into the economy.
In addition to this, the RBA has set up a $90 billion lending facility to banks for small and medium businesses, in partnership with the government, who contributed $15 billion.
Lenders can borrow from this fund at an extremely low rate and then lend this to businesses, in an effort to keep them afloat through the COVID-19 shutdowns.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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