RBA holds cash rate at 0.25%

Photo by Matthew Pablico on Unsplash

Australia's cash rate will remain unchanged in April, following a tumultuous month which saw two cuts.

The Reserve Bank of Australia (RBA) made the decision in its board meeting today to keep the cash rate at the record low 0.25%.

The cash rate at the beginning of March was 0.75% before two cash rate cuts worth a total of 50 basis points -the first time two cuts have ever taken place in a single month.  

The RBA deemed another rate cut was not necessary today, and it had previously stated 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 in the minutes of its emergency March meeting.

"Members had no appetite for negative interest rates in Australia." 

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. 

A hold was also the expected outcome predicted by an overwhelming majority of economists in Australia.

Bloomberg's monthly survey of top economists returned a unanimous 0.25% cash rate hold result. 

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

Senior economists from major banks had also stated there would be no movement.

"After all the fireworks last month we don’t expect any surprises from the RBA today," NAB economist Rodrigo Catril said.

"The RBA is broadly expected to keep policy – the cash rate, yield curve control and QE – unchanged."

What the RBA said

As he has done in recent statements, RBA Governor Philip Lowe mentioned the coronavirus and its effect on the economy frequently. 

"The coronavirus remains first and foremost a very major public health issue, but it is also having very significant effects on economies and financial systems around the world," Governor Lowe said. 

"Many countries are expected to experience large economic contractions as a consequence of the public health response. Large increases in unemployment are also expected.

"Once the virus is contained, a recovery in the global economy is expected, with the recovery supported by both the large fiscal packages and the significant easing in monetary policy that has taken place."

Governor Lowe also touched upon the recent introduction of quantitative easing (QE), which will see the Reserve Bank purchase billions of dollars worth of government and secondary market bonds to help fund financial market activity, aka easing monetary policy by injecting huge quantities of cash into the economy.

"Since this target was introduced, the Bank has bought around $36 billion of government bonds in secondary markets, including bonds issued by the states and territories. The Bank will continue to promote the smooth functioning of these important markets," he said.

"The coordinated monetary and fiscal response, together with complementary measures taken by Australia's banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed.

"The Board is committed to doing what it can to support jobs, incomes and businesses as Australia deals with the coronavirus. The comprehensive policy package announced last month will also support the expected recovery.

"The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band."

Not comparable with the previous releases. The #RBA note the "very large" economic contraction coming & the unemployment rate rising to "highest level in many years". Emphasis on the combined monetary & fiscal response & the willingness on the former at least to do more #ausbiz pic.twitter.com/Mus3VcCJuJ

— Alex Joiner (@IFM_Economist) April 7, 2020

According to CoreLogic Head of Research Eliza Owen, the current cash rate may now be in place for years to come. 

"No doubt the RBA will be closely monitoring the impact of record low interest rates and other stimulus measures on the economy," Ms Owen said. 

"To date, the policy announcements from the RBA and other sectors of government have been well received with the overall level of stimulus now getting close to 17% of Australian GDP."

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Disclaimers

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): Great Southern Bank, 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.
• If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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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