Rates cut to 0.5% to shield economy from coronavirus
The RBA announced at today’s meeting that the official cash rate would drop from 0.75% to 0.5%. The key reason is an attempt to shield the economy from the impact of coronavirus as markets around the world are losing value.
The cash rate was dropped 3 times last year in order to encourage the economy around it’s gentle turning point. Recent latest lacklustre inflation figures, increased unemployment rate and sluggish wage growth show that the economy needs a bit more of a shove. The impact of our horror summer of bushfires, extreme weather and the ongoing drought are also starting to be felt, so it made sense that the RBA would drop rates today. However, the impact of a rate cut gets less the closer the rate gets to zero. And now the rate is sitting at just 0.5%, there’s little room left to manoeuvre.
The cost of borrowing money is now at an historic low. Melbourne homebuyers are clearly taking advantage with some impressive increases in home values. The establish home market around the country has seen a boost, although investor lending remains subdued. As Governor Philip Lowe mentioned today, there is a lot of competition from lenders for high-quality borrowers (or those with high credit rating). Many homeowners are taking this opportunity to review their mortgage and shop around for the best rate. If you’re not sure you’re getting the best rate for you, contact us and we’ll make sure you are.
The RBA is hoping that once the coronavirus is contained, the global economy will recover quickly. If not, today’s statement made it clear that the RBA is prepared to cut rates again and soon if needed. So we may be seeing a new record low as early as next month. Interesting times ahead.