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.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
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. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
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."
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."
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 2020. 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 2020) 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, Performance Drive 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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