November Interest Rate Announcement

The Reserve Bank of Australia has cut the official interest rate by 0.15 percentage points in its first shift since sitting at the already historic low of 0.25 per cent from March.

The decision on Tuesday to reduce the cash rate and yield curve targets to a new record low of 0.10 per cent was immediately welcomed by many of the country’s leading economists as a valuable back-up for the government’s budget measures last month to boost an economy staggering from its COVID-19 hit.

“This is the shot in the arm the economy probably needs in the run-up to Christmas,” said Angela Jackson of Equity Economics. “There’s been some economic stagnation in a number of states across Australia and this will keep the dollar low, stimulate exports and help get things moving again.”

There’s been a great deal of discussion about whether banks will pass on much of the rate cut to consumers, but Ms Jackson says there’ll be a lot of pressure on them to play fair. “It’s in the banks’ interests that customers start spending again,” she said. “But they probably won’t pass on the full amount.”

If they do pass on the cut, it could mean significant savings for consumers, with a cut of 15 basis points saving the average home loan customer around $500 a year in interest, says Graham Cooke, insights manager at Finer, in its latest RBA Cash Rate Survey.

“Now is not the time for home owners to be complacent,” he said, suggesting borrowers should refinance to a more competitive deal if their lender didn’t pass on savings.

If a home owner with the average mortgage of $479,801 were to drop from the current average variable rate of 3.99 per cent to 3.84 per cent, he believes they would pocket an extra $495 per year which, over the course of a 30-year loan, would save them $14,857 in interest.

But considering it has been such a small cut, it won’t have a huge impact, says Paul Bloxham, chief economist for HSBC Australia. “It will put further downward pressure on mortgage rates, but only by a small amount,” he said.

“The RBA has only taken a small step and it’s pretty near the limit of what it can deliver. It makes sense to have done this, but, for the broader economy, most of the game now is with fiscal policy – government spending and tax policies.”

But Real Estate Institute of NSW president and Laing+Simmons managing director Leanne Pilkington said rate cut-induced prices rises could make homes less affordable.

“I think the property market is already seeing a lot of price pressure as a result of a lack of stock,” she said. “This rate cut will potentially exacerbate that. History has shown us that whenever interest rates go down, prices go up.

“Low interest rates are good for affordability, however, if coupled with a change in the rules around responsible lending. It’ll enable more people to get into the market. And hopefully it might encourage more people to sell.”