The RBA’s 1.75% May cash rate cut, lender's responses, and the Federal Budget release – a summary

It's been a huge week in finance, with the Reserve Bank of Australia cutting the cash rate to a new historic low of 1.75%, 12 months after their last rate cut, and just hours before the release of the new Federal Budget. Since then we've seen movement from the majority of the bigger lenders, and much debate about what it all means in the meida. Here's the basics in summary:

The RBA stole the spot light from The Federal Budget for a moment when they cut the cash rate, thanks to a rebalancing of the Australian economy after the mining boom’s end, and growth in the global economy.

It’s been a whole year – why cut rates now?

After an entire year of conservative decisions from The Board, it seemed about time it gave up its neutral stance. Low inflation has been the topic of concern over the last few months, and with a fall in CPI of 0.2% in the March quarter, (figures courtesy of the Australian Bureau of Statistics) core inflation dropped to an unhealthy level of 1.6%, contributing to The Board’s decision.

With regards to inflation, Governor Glenn Stevens stated, “These results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

After months of tight lending standards, and despite concern that the drop in interest rates may spark a flurry of spending in Sydney and Melbourne, The Board decided that these markets have stabilised enough, after skyrocketing prices in 2015, to withstand a lower cash rate.

Can we expect more rate cuts in the future?

With the Federal election set for July, economists are predicting another rate cut this year, however it is unlikely that this will come before then.

What are the Australian Lenders doing in response to the rate cut?

So far, it is looking promising, with 3 of the big 4 banks (CBA, NAB & Westpac) already opting to cut interest rates by the full 25 basis points.

  • ANZ is only passing on a 0.19% cut.
  • Suncorp has reduced by 0.20% on owner occupied rates and 0.15% on investment rates.
  • CUA has reduced the majority of its interest rates, between as low as 0.10% and up to the full 0.25%, depending on the product,  and loan size. Their super competitive product that is currently sitting at 3.99% -  Fresh Start Basic product has remained unchanged.

Of the other smaller lenders, time will tell, as some of them are already holding super competitive and record breaking low rates already right now, and may use this as an opportunity to bring themselves back into line with some of the larger lenders, as CUA has done.

How you can use this rate cut to your advantage:

If you currently have a mortgage, the key here is to remember, don’t jump the gun into refinancing due to lower interest rates alone. Often, one of the best ways to save money is to continue to pay your higher mortgage repayment as it was, which ultimately will save you interest in the long run, without the cost of refinancing.

If you would however like to review your lending options, or you are looking to upgrade, invest or refinance, call me today and we can get the ball rolling for you in terms of crunching the numbers in relation to interest rates, and the other costs involved.

What about the 2016/17 Federal Budget:

Now we all know the budget is a whole other topic, but if you are keen to know more, here are some useful links to the Federal Budget, released 3rd May 2016:

Are you ready to review your options?

Book your free consultation with Daniel Meade to get your financial foundations ready now.

Or, for further information on this or any other topic, please contact your local Mortgage Choice broker,

Daniel Meade:

Phone 07 3833 9666,

Email daniel.meade@mortgagechoice.com.au

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Daniel is looking forward to helping you with your home loan options today.  Thanks for reading our blog.

Important information

This article is for general information purposes only and does not constitute specialist advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances, and specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy.

 

 

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