Open economy lays foundation for RBA cash rate cut

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on October 20, 2020
Open economy lays foundation for RBA cash rate cut

Photo by Mitchell Luo on Unsplash

Australia's central bank has discussed the effectiveness of further monetary easing.

Minutes from the Reserve Bank's (RBA) October Monetary Policy Meeting revealed the Bank weighed up a cash rate cut but questioned the effectiveness in the current economic climate. 

"They [Board members] recognised that some parts of the transmission of easier monetary policy had been impaired as a result of the restrictions on activity in parts of the economy," they said.

"However, as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier."

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.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.

Variable Home Loan (Principal and Interest)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of May 18, 2022. View disclaimer.

The RBA noted the effect a cash rate cut had on consumer confidence and would likely cause further cuts to already abysmal savings account rates. 

"Members also considered the effect of lower interest rates on community confidence and on those people who rely on interest income." 

Speculation has been rife the central bank will cut the rate to a new record low of 0.10%, with economists from Westpac and NAB forecasting a cut at the November meeting. 

The central bank said further monetary easing was likely to bring about greater financial stability benefits from a stronger economy but noted the risks that came with this. 

"A further easing would help to reduce financial stability risks by strengthening the economy and private sector balance sheets, thereby lowering the number of non-performing loans.

"This benefit would need to be weighed against any additional risks as investors search for yield in the low interest rate environment, including those resulting from higher leverage and higher asset prices, particularly in the housing market.

The Board again ruled out negative interest rates and said the cash rate wouldn't be raised until progress was made towards full employment and inflation sat firmly in its desired 2-3% band. 

Overall the RBA said the Australian economy had performed well compared to global counterparts, with unemployment not set to reach the 10% mark they had previously forecasted. 

"Labour market conditions had improved somewhat over the preceding few months, with the unemployment rate likely to peak at a lower rate than earlier expected," it said. 

"Nevertheless, both unemployment and underemployment were expected to remain high for an extended period." 

The RBA said the record low cash rate had contributed to steady growth in owner-occupier lending but wary investors were yet to re-enter the market. 

"Commitments for housing loans to owner-occupiers had picked up further in August across all states, consistent with a general increase in activity in the housing market."

"By contrast, credit to investors in housing had remained weak, although it had stopped declining in August.

"Following an earlier tightening in response to the pandemic, more recently constraints on the supply of housing finance had eased slightly."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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