A borrower’s market: The Reserve Bank of Australia cuts cash rate to a record low

The Reserve Bank of Australia has just announced a further reduction to the cash rate to a record low of 1%. This is the second rate cut in just two months in a bid to generate greater trust in the Australian economy and reduce unemployment rates. At the time of the first interest rate cut, Reserve Bank Governor Phillip Lowe commented that it “wouldn’t be unreasonable” to expect more interest rate cuts later in the year.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

Phillip Lowe, Reserve Bank Governor, Excerpt from a speech delivered on May 21 2019

Last month, 47 lenders passed on the June cut at the complete rate of 1.25%, while 32 passed on a portion of it, and seven didn’t pass on the reduction at all.

In May of this year, Westpac’s Senior Economist Bill Evans predicted three cuts this year, while other economists suggested that last months was to be the first of many.

“The June cut remains almost certain; a second in August is our expectation and  the November cut should also proceed.”

Bill Evans, Westpac Senior Economist 

While Evans’ prediction was just shy of a month, it’ll be interesting to see whether a further cut is made to the already low rate before the end of the year.

What does the interest rate cut mean for home buyers?

In a financial climate like this, one could argue that your money is better invested in property than the bank if possible. Savers are likely to experience lower interest payments on their term deposits (depending on which bank you’re with), while homebuyers will find it easier to secure a mortgage with a lower interest rate.

Many financial advisors have also explained there could be a potential decrease in mortgage repayments of up to $92.95 per month for a $650,000 home. 

Mozo Homeloan Director Kirsty Lamont suggests buyers shop around for the best mortgage providers as there will be strong competition, based on the current economic status of the market.

Last month Urban.com.au reported on how the interest rate cuts will affect home buyers, and how rapid growth of competition is likely to stem from a regained confidence in the property market.

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