Labour market and economy force RBA’s hand

October 01, 2019

The Reserve Bank of Australia (RBA) has made the decision to cut the nation’s official cash rate to a new record low of 0.75%.

Chief Executive Officer of Mortgage Choice, Susan Mitchell said, “Today’s decision from the Reserve Bank comes as no surprise and it begs the question, how low can the cash rate go?

“If you asked me this time last year what a competitive interest rate was, I would have said that if your rate didn’t start with a 3, you were paying too much but today we have lenders on our panel offering loans starting with a 2. This historically low rate environment has put borrowers in a great bargaining position.”

Speaking about the cash rate decision, Ms Mitchell said, “It’s clear that the latest economic data proved too difficult to ignore, urging the Bank to deliver its third round of monetary policy stimulus in 2019. 

“The Reserve Bank’s decision to lower the cash rate follows similar moves from central banks around the world. The US Federal Reserve decided to lower the federal funds rate and the European Central Bank lowered its deposit rate in September.

“The RBA’s dovish tone in the minutes of the September monetary policy meeting indicated another cut would be delivered sooner, rather than later. This was further supported by Governor Lowe during his address to the Armidale Business Chamber, where he said that the back-to-back cuts in June and July were delivered to make progress towards full employment and the inflation target. 

“The latest data from the labour force supports the case for another reduction to the cash rate. According to the Australian Bureau of Statistics (ABS), the unemployment rate rose to 5.3% in August and the underemployment rate rose to 8.6%.

“The latest data from National Australia Bank’s Business Survey suggests the outlook for employment growth is weak, as business confidence and conditions have fallen to well below their respective long-run averages.

“National accounts data, released by the ABS the day after the September cash rate decision, revealed that annual GDP growth slowed and was below what the RBA had forecast in its August Statement on Monetary Policy,” said Ms Mitchell.

Ms Mitchell said Reserve Bank board members would be hopeful that dropping the cash rate once more would serve to reinvigorate the labour market, inflation and the economy.

“Today’s decision from the RBA is great news for borrowers and hopeful first time property buyers. We will have to wait and see to what extent lenders pass the cut on to borrowers but the reality is, home loan interest rates have not been this low since the 1950s. And, with dwelling values in the major capitals starting to turnaround, now could be a great time for hopeful buyers to put their plans in action.

“The housing market, which has benefitted in part from back-to-back cash rate cuts in June and July, has recorded the largest month of growth since March 2017, led by 1.7% growth in both Sydney and Melbourne. If Australia’s lending institutions pass on today’s rate cut on to their home loan products, dwelling value growth is likely to continue.

“There is increasing speculation that another rate cut will occur in November, which could see the cash rate drop as low as 0.50%. Anyone looking to buy their first home should consider making an appointment to speak to their local mortgage broker to get home buying ready sooner, rather than later. 

“It is important for borrowers to know that interest rates aren’t the only consideration when choosing a home loan. That being said, a conversation with an expert could mean the difference between saving hundreds, if not thousands of dollars in interest and repayments over the life of your loan.

“The cost of borrowing may be going down, however there is still a great deal of complexity in the lending environment as lenders continue to forensically examine home loan applications. I encourage borrowers to enlist the guidance of an experienced mortgage broker to help you put your best foot forward when you decide the time is right to submit your home loan application. 

“For those borrowers who have been in the same home loan product for a while, it would be wise to speak to a broker about your situation and discover if there are other home loans better suited to your needs,” concluded Ms Mitchell.