At its monthly meeting today, the RBA has decided to leave the cash rate on hold at 0.25 per cent.
The move that was widely tipped by analysts will see the cash rate remain at historic lows for the foreseeable future. In mid-March, the RBA held its first emergency meeting since 1997 to slash the cash rate to current levels before the unprecedented social distancing measures ground the nation’s economy to a halt.
In a statement, Governor Philip Lowe said the Board had reaffirmed the board’s targets for the cash rate and the 25 basis point yield on three-year Australian government bonds.
“The coronavirus remains first and foremost a very major public health issue, but it is also having very significant effects on economies and financial systems around the world,” he said.
“Many countries are expected to experience large economic contractions as a consequence of the public health response. Large increases in unemployment are also expected.”
“Once the virus is contained, a recovery in the global economy is expected, with the recovery supported by both the large fiscal packages and the significant easing in monetary policy that has taken place.”
Mr Lowe also suggested that he feels the extreme measures taken by the RBA will help the economy over time. He also made the point that the size of the bond buying will likely be scaled back after the initial large ‘contraction’ in the economy.
“The co-ordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed,” he said.
“These various responses are providing considerable support to Australian households and businesses through what is a very difficult period. The Australian financial system is resilient.”
“It is well capitalised and in a strong liquidity position, with these financial buffers available to be drawn down if required to support the economy.”
An Extraordinary March
CoreLogic’s Head of Research, Eliza Owen believes the current low interest rate environment will be around for some time.
“After an extraordinary March period, in which the cash rate was reduced twice and unconventional monetary policy was introduced, the RBA left the cash rate unchanged at 0.25%.”
“The record-low rate of 0.25% may be in place for years to come. No doubt the RBA will be closely monitoring the impact of record low interest rates and other stimulus measures on the economy. To date, the policy announcements from the RBA and other sectors of government have been well received with the overall level of stimulus now getting close to 17% of Australian GDP.”
Rates Can’t Drop Any Further
Mortgage Choice Chief Executive Officer, Susan Mitchell, feels that while today’s decision was expected, there was also little point cutting further.
“The decision to hold the cash rate today comes as no surprise, given the RBA had explicitly ruled out going into negative interest rate territory in the minutes of its special meeting. Members agreed that the cash rate was now at its effective lower bound and they had no appetite for negative interest rates in Australia.”
“A cash rate so close to zero is unlikely to have much impact on market rates. Going forward, the Reserve Bank will look to monitor the impact of its unconventional monetary policy measures before resorting to cutting the cash rate again.”
“While there isn’t much room for home loan interest rates to fall further, a sustained period of low interest rates will support households and businesses alike as they weather the COVID-19 induced storm. Home loan interest rates are sitting at record lows and this is particularly the case with fixed rate home loan interest rates, which are extremely competitive at present. With lenders advertising fixed rates in the low “2”s, now might be a good time to lock in a low rate,” said Ms Mitchell.
Virtually all economists around the country predicted the Reserve Bank of Australia would hold the cash rate at 0.25 per cent on Tuesday.
Graham Cooke, insights manager at Finder said he’d be surprised if we see any further drops.
“The RBA said it is treating 0.25% as if it is 0% and say they have no appetite to cut further.”
Sally Tindall, research director at RateCity.com.au, believes this is a great time to talk to your bank.
“The banks are offering up some of the lowest rates we’ve ever seen. Switching lenders could potentially free up hundreds of dollars per month for people in a position to refinance,” she said.
“Australians who are struggling financially shouldn’t be afraid to ask for a rate cut either. Banks have made it clear they want to help people affected by COVID-19 where they can.”
“If you do sign up to a fixed loan, do your research first and make sure you’re happy with your rate. Fixed loans are typically less flexible, but a lot of people are looking for certainty right now above everything else,” she said.
