The Reserve Bank of Australia (RBA) has delivered another 25 basis point cut to the official cash rate, bringing the rate to a new historic low of 1.00%.
These two rate cuts could give the average Australian mortgage holder with a $545,000 home loan an approximate saving of $220 per month, if lenders pass on the cuts in full.
There was no doubt that a second rate cut was on the cards later this year, however data from the labour market and the national accounts drove the Board to deliver another cut sooner rather than later.
When the Bank made the first cut in nearly three years last month, it spurred half of the lenders on our panel to pass on the savings in full to their borrowers. However, it remains to be seen whether they take the same approach this time around.
According to the Australian Bureau of Statistics (ABS), the underemployment rate, shows that the number of Australians who are currently employed and not working their desired number of hours, is on the rise.
Further, the seasonally adjusted unemployment rate was 5.2%, which is far off the RBA’s desired 4.50%. Monetary policy stimulus could support job growth and wage growth.
Moreover, the ABS data revealed that the economy grew at the slowest pace since 2009 at 0.4%, lowering the annual growth rate to 1.8%.
The RBA’s strategy, coupled with fiscal stimulus in the form of the Coalition’s $158 billion tax cut plan which could pass in parliament this week, will serve to boost economic growth going forward.
In good news for the property market, the latest CoreLogic Hedonic Home Value Index revealed that national dwelling values were down 0.2% over June. Interestingly, both Sydney and Melbourne dwelling values improved month-on-month, growing 0.1% and 0.2% respectively.
Looking ahead, the RBA has not ruled out the possibility of further rate cuts. Regardless of what the RBA decides going forward, borrowers who have benefitted from last month’s cash rate cut should review their finances. This cashflow relief may present you with opportunities to make additional home loan repayments, the potential to make extra contributions to their superannuation, or the potential to explore other investment opportunities to achieve your financial goals.
If you didn’t benefit from last month’s rate cut consider speaking to your mortgage broker to find out if there are more competitive home loan options available to you. There are many great deals to be had at the moment, which means now might be the right time to refinance your loan.