The Reserve Bank has decided to cut the official cash rate by 25 basis points to 0.50% in its board meeting today.
Today's cut is the first since October, following holds in November, December and February.
The RBA had been expected to hold the cash rate steady again today until recently, when fears over coronavirus and the resulting economic fallout priced a March rate cut as a near certainty.
A recent OECD report, for example, said the virus could slash half a percentage point (about $10 billion) from Australia's annual economic output.
Market pricing for a 25 basis point cut from the RBA increased from 18% at close of business on Friday 28 February to 100% as at yesterday morning.
The market is now expecting the #RBA to use the remainder of its conventional policy immediately - it may well do so, in particular if nothing is forthcoming from other policy makers in a timely manner... #ausbiz pic.twitter.com/M0zhJlbxXa— Alex Joiner (@IFM_Economist) March 1, 2020
Prior to this, the next rate cut was expected to occur in April at the earliest.
Thinking about refinancing to a low-rate, variable owner-occupier home loan? Below are a handful of low-rate loans in the market.
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 08 July 2020. View disclaimer.
RBA Governor Philip Lowe's statement was chock-full of coronavirus references justifying the cut.
"The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected," Dr Lowe said.
"It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.
"The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending.
"As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected."
Mr Lowe also said the board was prepared to ease monetary policy further, further fueling speculation of another rate cut soon.
"The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target," he said.
"The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity.
"It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy."
The RBA has previously hinted it would consider implementing Quantitative Easing (QE) should the cash rate reach 0.25%.
The next rate cut, should it be 25 basis points again, would take our cash rate to this level.
Lenders unlikely to pass on full rate cuts
CoreLogic head of research Tim Lawless said there is less certainty this latest rate cut will add fuel to the housing market in the current economic climate.
“This is partly because the latest rate cut is unlikely to be fully passed on to mortgage rates,” Mr Lawless said.
“Furthermore, a low cash rate coupled with concerns around the global spread of coronavirus, has the potential to spook consumers and drag confidence lower.
“Buying or selling a home is a high commitment decision; if consumer confidence slips further from already low levels, we could see Australian households sit on their hands rather than decide to buy or sell, which would weigh on market activity.”
Mortgage Choice CEO Susan Mitchell also said it was unlikely borrowers would see full rate cuts.
Having said that, it has just been announced that one of Australia's major banks Westpac will pass on the full rate cut for home loan customers, something they hadn't done following previous rate cuts.
"However a record low cash rate means a sustained period of low interest rates will continue to stimulate the housing market, worsening housing affordability in the nation’s largest markets, Sydney and Melbourne," Ms Mitchell said.
“The current low rate environment makes now an ideal time for those looking to enter the property market to put their plans in action."
Prushka Fast Debt Recovery CEO Roger Mendelson meanwhile said this rate cut will not stimulate consumer spending as intended, and will only fuel the rise in house prices already seen in major cities.
“Homeowners should take advantage of this opportunity to pay off their debts at a higher rate, by maintaining their monthly payments,” he said.
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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