The RBA today decided to cut the official cash rate to a new record-low level of 1.0 per cent.
Most of Australia’s economists and industry representatives were expecting a cut, according to comparison website Finder and its panel of respondents, with 68 per cent accurately predicting the move.
While moved to its new record low last month (when it moved to 1.25 per cent), the cash rate is now at a new all-time low, with anticipation building for a further rate cut later this year. According to Finder’s panel, 85 per cent of respondents predict the cash rate to fall in August.
Graham Cooke, insights manager at Finder, said that the decision to cut the official cash rate for two months in a row was possibly due to June’s cut not being large enough to make a difference.
“The objective is to lower unemployment, boost wage growth and push inflation back to target. It’s clear that one cut isn’t enough,” Mr Cooke said.
“Frankly, two cuts might not be either, but it’s a step in the right direction and it’s great news for home owners. It’s two down and maybe one or two more to go.”
AMP’s Shane Oliver, who accurately predicted the rate cut, agreed with Mr Cooke’s sentiments, and predicted that there would be more rate cuts coming soon.
“The June 0.25 per cent rate cut has not been enough for the RBA to achieve its objective of lowering unemployment, boosting wages growth and pushing inflation back to target,” Mr Oliver claimed.
“More rate cuts will be needed.”
Cameron Kusher, research analyst at property data provider CoreLogic, also accurately predicted that interest rates would fall and, like Mr Oliver, also sees more cuts coming soon.
Today’s decision, however, he claimed, had nothing to do with the property market and was more focused on the economy at large.
“In fact, the ongoing slowing of the rate of decline in dwelling values throughout 2019, and the recent uptick in Sydney and Melbourne dwelling values, would likely have reduced concerns of further wealth erosion from housing,” Mr Kusher said.
“Furthermore, the 25 basis point cut in June along with the cut today and the likelihood of reduced serviceability buffers from APRA are likely to be further positives for the housing market and encourage an ongoing gradual levelling in the housing downturn nationally.”
What does this mean for savings accounts?
However, property investors who also depend on interest from their savings accounts are seeing unfavourable conditions, with retirees in particular feeling the effects, Mr Cooke noted.
According to Finder data, Australians have $526 billion in saving accounts Australia-wide. The 50 basis point reduction from the last two months would represent a loss of $2.6 billion in interest over a year, with a drop of 75 basis points representing $3.9 billion less.
“So far, many of the top high-interest savings accounts have reduced their rates and some have even dropped by more than the 25 basis point cut from June, such as Suncorp Growth Saver and CommBank NetSaver,” Mr Cooke said.
“It’s a timely reminder to stay on top of your savings account and see if you could be getting a better deal, especially as high rates will be harder to find.
“But remember, don’t make a decision based on rate alone — always factor in the home loan’s features and whether these fit with your goals and lifestyle so you’re not stung down the track.”
One assumes, debt levels in Australia being what they are, cheap money is now a must. without it the economy will tank. Seems to me it will be all but impossible for the RBA to ever raise rates, too much debt for that. Its a crazy world, share prices at near record highs, despite a slowing economy because cheap money is all that matters to the stock market. Is is just me or is Australia’s next recession going to arrive when both the RBA and the Federal government have used up all their ammunition trying to fire an economy with cheap money and debt when what it really needed was productivity reform. Does anyone really believe that cutting interest rates and taking on even more debt is the solution? The world has been at it for 10 years now, it does not work. Cheap money was always meant to be a short term fix to buy time for policy to be implemented to tackle the real issues. As for inflation there is lots of it in Australia but is called asset price inflation.