The Reserve Bank of Australia (RBA) has made a historic statement. It cut the cash rate twice in two months to 1.0%. In a move to address the persistent low inflation and the slow wage growth, the Reserve Bank wants to maximise positive parts of the environment. It is the 14th cut since the monetary policy easing cycle that started back in November 2011.
One cut isn’t enough. The change in cash rate last June did not make a dent on the unemployment rate, wage growth, and inflation issue. The July cut is meant to boost the economy. You can also expect another cut or two in the coming months.
The careful positivity of the Australian market
When the interest rate dropped, RBA governor Philip Lowe cited positive points for the economy, which is moving the country in the right direction. The global economy appears reasonable and stable. Infrastructure spending is increasing across the country. Australia is at least reporting solid export growth.
However, household consumption is still weak. The housing markets are still on their way to stabilising.
Hopefully, the 1.0% cash rate can boost the economy and facilitate the wages growth and inflation.
Homeowners celebrating the 1.0% cash rate
What does the RBA rate cut mean for the average Australian homeowner? For homeowners looking at variable home loan rates, the increasing number of cuts will lead to more significant potential savings.
Even a minor decrease in the current variable rate, from a 1.25% to a 1.00% cash rate, can already save tens of thousands of dollars over 30 years. The savings only become bigger as the cuts become deeper; at 0.50% cash rate, home loans will be a much more attractive option.
The 1.0% cash rate and the promise of future cuts are excellent for first-time home buyers and property investors. Of course, Australians with cash savings already in the bank may not be so comfortable.
Losing interest from savings
While homeowners and interested property buyers are happy, Australians relying on interest from savings are tightening their belts. Top high-interest savings accounts are likely to reduce their rates as a response to RBA’s cut cash rate.
It is essential to watch your savings account and see if you may be losing out. If you could be getting a better deal with higher savings rates, lock it down.
Preparing for further cuts
The Reserve Bank has been quite clear in responding to the poor national figures with a strong price cut. With the latest cut, the RBA may be getting the market ready for a further rate cut. A lot of factors still need to be tracked, including tax policy and global trade. The historic 1.0% cash rate is likely to be only a step in one direction towards improving wages growth, inflation, and underemployment.
With the slowing economy, home buyers and property investors are encouraged to maximise the opportunity. However, Australians with cash savings need to be careful against diminishing returns.