The bank cash rate of 2% has been on hold for a year. Today the RBA decided to reduce the cash rate again to a record low of 1.75%. The RBA were in a quandary over what to do and most commentators were expecting a hold the rate decision. The reasons why some pundits were predicting a drop to 1.75% were interesting and some are outlined here. The decision not to reduce the rate was close like for some time and has been influenced by a number of factors.
The big banks have been getting a drubbing due to recent scandals and numerous media outings of malfeasance. Get ready for a lot of expensive adverts as the Big 4 try to regain some of that lost gloss. But everyone will forget about it soon enough. The last time they were criticised was only late last year when they raised interest rates without an RBA rise. We have forgotten all about that already. This current speculation of a need for a rate drop is in part due to this unapproved mortgage rate increase late last year.
Currently, the best rate on offer is 3.99% for 3-year fixed. Standard variable rate is between 4.2-4.4% depending on the amount being borrowed. Westpac is still offering a $1250 cash back offer on any new loan until June 12. Another lender is offering a big discount rate for anyone bringing their investment property along with a home loan application.
The banks and second tier funders are offering good deals at the moment in competition over market share. If you think you are not getting the best rate with your current loan please contact us and we will refer you to best and most appropriate provider. You may be able to get a rate cut without waiting for the RBA. It will be interesting to see if this latest reduction will be passed on to consumers.
Back to the reasons for the reasoning behind RBA announcement. The main driver for a reduction was the core inflation rate of 1.6% which is below the 2-3% range they like. Low petrol and energy prices have been good for the economy’s hip pocket. Rate cut talk surfaced again during the financial turmoil and general pessimism at the beginning of 2016. The Aussie dollar soaring towards US80¢ is also a factor. Treasury would love to get the AUD down below 70 cents but have been adverse to lowering rates in the past in order not to fuel the property bubble. With capital city prices now cooling that is not such a concern.
It is hard to get the RBA to react and move the rate. Even in times of market and economic stress they are doubtful about the effectiveness of cuts beyond the already record low of 2 per cent. The Reserve Bank says that lower rates will do nothing to spur business investment, as companies base their capital expenditure plans on longer-term, risk-weighted financing costs. Therefore the outcome of a rate reduction was possible but unlikely. The wisdom of today’s cut will be widely debated.