This week, in a move that caught many financial experts off guard, the Reserve Bank of Australia cut interest rates to 1.75%, a record low. Noting a fall-off in inflation and economic growth, the RBA made the decision in order to “stimulate the economy and boost what it described as ‘unexpectedly low’ inflation,” according to a recent Financial Times article.
So what happens next? Some expect an additional rate cut in the coming months, while others see the rate holding steady. David Scutt of the Business Insider Australia compiled some Australian interest rate predictions for 2016 from several leading economists in his article What economists are saying about today’s RBA rate cut – and what the banks will do next:
Paul Dales of Capital Economics predicts,
We expect that rates will be cut to 1.5% at the August meeting… What happens then would largely depend on the response of inflation expectations… If they fall… then rates may have to drop below 1.5%.
Shane Oliver of AMP Capital agrees, stating,
Will there be another cut? Interest rate moves are a bit like cockroaches – if you see one there is usually another one lurking nearby… Our view is that there is likely to be another rate cut taking the cash rate to 1.5%.
Alan Oster of National Australia Bank disagrees, noting,
“For the foreseeable future, NAB expects the RBA to remain on hold at 1.75%.”
In response to this decision by the RBA, four leading Australian banks have announced plans to lower variable home loan rates by up to 25 basis points, effectively passing on the full .25 rate cut to their customers. NAB, CBA & WESTPAC have all reduced variable rates by .25% while ANZ has only dropped their rates by .19% (they usually adjust rates outside RBA timeframes). According to The Financial Express, these rate cuts are to become effective during the month of May. It remains to be seen if further rate reductions will be seen in the coming months, should the RBA take additional actions with the cash rate.
This news gives prospective home owners a prime opportunity to acquire a mortgage at a reduced rate.
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