Australia's central bank believes a cash rate cut would be more effective now than in previous months.
In a speech on Thursday, Reserve Bank (RBA) Governor Philip Lowe said the bank had assessed economic outcomes and found a rate cut may now be more suitable than earlier in the year.
"When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing," Dr Lowe said.
"The solutions to the problems the country faced lay elsewhere.
"As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was 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.
Dr Lowe said the central bank also needed to assess how further monetary easing would affect financial stability in the long-term.
"To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans," he said.
"In so doing, it can reduce financial stability risks.
"We also need to take into account the effect of low interest rates on people who rely on interest income."
Any definitive answer on a November cash rate cut was not given by Dr Lowe, who remained relatively cagy on the topic in his speech, and said The Board had not yet made a decision.
Economists are widely tipping the RBA will take the cash rate to a new record low at its November meeting, cutting by 15 basis points and taking the rate to 0.10%.
No cash rate hike till 2023
Dr Lowe said the conditions needed for a cash rate increase were a significant way away.
"On our current outlook for the economy – which we will update in early November – this is still some years away," Dr Lowe said.
"So we do not expect to be increasing the cash rate for at least three years."
The RBA has long affirmed it would not increase the rate until progress towards full employment was made and inflation sat in its desired band of 2-3%.
However, Dr Lowe said it was no longer good enough for the central bank to be 'confident' inflation would sit in that band.
"The Board will not be increasing the cash rate until actual inflation is sustainably within the target range.
"It is not enough for inflation to be forecast to be in the target range."
"While inflation can move up and down for a range of temporary reasons, achieving inflation consistent with the target is likely to require a return to a tight labour market."
Dr Lowe said The Board wanted to see more than just progress towards full unemployment and considered the current high rate of unemployment as an important national priority.
"Consistent with our mandate, we want to do what we can do, with the tools we have, to ensure that people have jobs," 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 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.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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