The Reserve Bank of Australia (RBA) has delivered some welcome and not entirely unexpected news to Australians today, with the Board announcing its first cash rate cut in almost two years.
Today’s decision brings the cash rate to the new historic low of 1.25%, marking the first rate cut since August 2016.
There are a few reasons why the RBA may have decided to cut the cash rate today. Sustained national dwelling value falls, consistently lacklustre inflation and mixed messages from the labour market, may have encouraged the Board to shift its long-held stance on monetary policy.
Last month, the RBA Board said that if labour market conditions deteriorated, the Bank would be inclined to lower the cash rate. Given that the nation’s unemployment rate and underemployment rate rose month-on-month to 5.2% and 8.5% respectively, the RBA Board may have been pressured into lowering the cash rate.
Today’s cash rate cut is good news for the Australian property market which could see a boost from lower interest rates. According to the latest CoreLogic Hedonic Home Value Index, national dwelling values fell 0.4% in April and 7.3% annually.
While today’s decision will no doubt bring relief to borrowers across the country, the question now is how soon, and by how much will the nation’s lenders pass on the savings to borrowers?
If recent history is anything to go by, the last time the RBA cut the official cash rate, few lenders actually passed on the full rate adjustment to borrowers, however it’s important that you know exactly what interest rate you are paying because there might be lenders offering more competitive deals in response to today’s cut.
If you are want to negotiate a better interest rate on your home loan, speak to your local Mortgage Choice mortgage broker to ensure you are in the right loan for your needs.