Will the RBA cut interest rates in November?

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on November 02, 2020
Will the RBA cut interest rates in November?

Photo by Noah Silliman on Unsplash

A Melbourne Cup RBA rate cut looks like a sure bet.

** BREAKING: The RBA has just announced a rate cut. Find out if your lender is passing it on. **

Tomorrow's Reserve Bank board meeting is easily one of the most anticipated in recent months with the possibility of a rate cut looking extremely likely following comments from RBA Governor Philip Lowe.

"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 in a recent speech.

"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."

The results of tomorrow's Reserve Bank Board meeting will be announced minutes before the Melbourne Cup kicks off in what is shaping up to be a very big news day, with the US presidential election also being held the next day Australian time. 

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.

Lender

Variable
More details
  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws

Variable Home Loan (LVR < 70%)

  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO ONGOING FEES

Yard PAYG Home Loan (Principal and Interest) LVR ≤ 80%

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster

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 August 14, 2022. View disclaimer.

Many economists expect the RBA will cut the official cash rate by 15 basis points in November to 0.10%, taking it to near negative interest rates.

See also: How would negative interest rates work in Australia?

NABWestpac, and 14 of 24 Bloomberg-polled analysts expect a November cash rate cut.

Economists had been expecting an October rate cut, but quickly changed their forecasts when they realised it would coincide with the release of the Budget.

Commonwealth Bank chief economist Stephen Halmarick said the RBA is likely to push further into what he calls "conventional unconventional monetary policy space" at tomorrow's Board meeting.

“This easing is expected to involve a cut in the three key interest rates – the cash rate target, the 3-year bond yield target, and the Term Funding Facility target from 0.25% to 0.1%,” Mr Halmarick said.

“Critically, this easing of monetary policy is expected to be implemented at the same time as the RBA looks set to revise upwards their economic forecasts given the run of better economic data.”

Not everyone expects an RBA rate cut tomorrow, though they are in the minority.

ING regional head of research Asia-Pacific Robert Carnell says the RBA is more likely to introduce more Quantitative Easing measures than they are to further reduce the cash rate. 

"As we head towards the 3 November Reserve Bank of Australia (RBA) rate meeting, we find ourselves almost alone in not expecting any further reduction in the cash rate," Mr Carnell said.

"We aren't saying we don't think the RBA will do nothing at the next meeting, by any means. We just think they would prefer to use a different tool. 

"Our preferred approach would be for the RBA to adjust its current yield curve control (YCC), which to be clear, is already a form of constrained Quantitative Easing (QE)."

Mr Carnell said a further reduction in the cash rate wouldn't have much impact on the economy.

"It would be hard to argue that a further 15bp cut in the cash rate target and 10bp on the exchange settlement (ES) rate would have a meaningfully positive impact on the economy or the labour market," he said. 

Will the banks pass on a rate cut?

As speculation of an RBA rate cut has been mounting over the last month, interest rates on savings accounts have been on the chopping block as banks preemptively cut ahead of tomorrow's decision.

Savers are expected to cop another blow if the RBA cuts rates tomorrow.

As for home loans, AMP chief economist Shane Oliver said he expects banks will pass on the rate cut to borrowers.

"The rate cut will depress variable mortgage rates by around 0.15% (15 basis points), as it will be hard for banks not to pass it on in full given the cheap funding they are getting from the RBA," Mr Oliver said in a note.

With many borrowers still struggling to make their mortgage repayments due to COVID, banks could cop backlash if they choose not to pass on more relief to borrowers in the form of a cut.

Switzer Financial Group Director Peter Switzer said an RBA rate cut tomorrow will set the tone for home loan interest rates.

"The RBA is like the godfather of banks. This rate cut is an offer of “when we cut, you cut” and is one the banks can’t refuse," Mr Switzer wrote on his website.

"A lower cash rate will cement more low-fixed rate home loan rates of interest, which right now are as low as 2.59% fixed for five years at UBank!

"In all likelihood, a cut will keep rates lower for longer, unless we get an extremely huge growth spurt here and worldwide in 2022."




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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Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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