RBA holds cash rate at 0.25% for September

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on September 01, 2020
RBA holds cash rate at 0.25% for September

Photo by Urlaubstracker on Unsplash

Australia's central bank has held the cash rate at 0.25% for the sixth straight month.

The announcement comes as little shock with economists universally agreeing the rate would remain unchanged. 

The Reserve Bank (RBA) had previously indicated the rate would remain unchanged until progress was made towards full employment and inflation sat between its desired band of 2-3%. 

Unemployment currently sits at 7.5%, but is expected to exceed 10%, and Australia is currently experiencing deflation, with the consumer price index falling 0.3% over the year.

Eyes now turn to tomorrow's national accounts, where GDP is expected to drop by over 5%, the largest ever contraction.

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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 June 29, 2022. View disclaimer.

RBA Governor Phillip Lowe said economic recovery was occurring across the nation, but would be bumpy and uneven as a result of the Victorian COVID outbreak, especially when it came to jobs. 

"Employment increased in June and July, although unemployment and underemployment remain high," Dr Lowe said.

"The virus outbreak in Victoria and subdued growth in aggregate demand more broadly mean that it is likely to be some months before a meaningful recovery in the labour market is underway.

"In the Bank's central scenario, the unemployment rate rises to around 10% later in 2020 and then declines gradually to be still around 7% in two years' time."

Dr Lowe added wage growth and inflation would remain stunted for at least the immediate future. 

"Wage and prices pressures remain subdued and this is likely to continue for some time," he said.

"Inflation is expected to average between 1 and 1.5% over the next couple of years."

The central bank also announced it was expanding its additional funding to Authorised Deposit Institutions (ADIs), up until at least the end of June of next year.

Dr Lowe said ADIs had drawn $52 billion of this extra funding already.

"Today's change brings the total amount available under this facility to around $200 billion," he said. 

"This will help keep interest rates low for borrowers and support the provision of credit by providing ADIs greater confidence about continued access to low-cost funding."

Record low cash rate keeps lending affordable 

CoreLogic Head of Research Tim Lawless said the record low 0.25% cash rate was helping people to continue borrowing money to purchase homes.

"The low cash rate has helped to bring mortgage rates down to record lows; new loans for owner-occupiers are attracting an average variable mortgage rate around 2.7%, with fixed rates even lower," Mr Lawless said.

"Such a low cost of debt has been a key factor in supporting housing demand and helping to insulate housing values. 

"Through the pandemic to date, housing values nationally have slumped by only 2.0% and housing activity has trended only about 5% lower than a year ago over the past three months."

Mortgage Choice CEO Susan Mitchell said the low cash rate and current housing market created a unique opportunity for savvy buyers. 

“As we enter what will be an unusual Spring selling season, opportunities remain for first home buyers who are ready to put their foot on the property ladder," Ms Mitchell said.

"The low cash rate continues to drive historically low home loan interest rates.

"This coupled with unprecedented levels of Government support in the form of grants and incentives creates opportunity for prospective buyers."


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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