October 2020 – RBA holds rate for now as budget is released.

Today at its monthly meeting, the RBA decided to hold the official cash rate at 0.25%. The decision comes among growing speculation from economists that the Reserve Bank are preparing to drop the rate even lower than it’s current lowest low. In fact, it was 50:50 as to whether the next rate cut would come today.

The reason for the growing rumours? The thing that shall not be named (whispers: the recession), COVID pandemic, growing unemployment and the general state of the world right now (2020 huh?). However most economists assumed the RBA would wait until the Federal budget was released and the impact of any stimulus measures were understood. To be fair, with the rate so low, the impact of another cut will be fairly minimal. Economic stimulus is most effective at a Federal government level, which is what RBA Governor Philip Lowe has not so subtly been suggesting all year.

In today’s statement, Governor Philip Lowe said that despite the ‘sharp’ economic contraction in the June quarter, the national economy is now beginning to recover. However he notes the recovery is ‘likely to be bumpy and uneven’.

He also notes that the unemployment rate is likely to peak at a lower rate than feared although it will take time for that and the inflation rate to reach desired levels.

As for more rate rises, well he closes his statement with the statement ‘ the Board continues to consider how additional monetary easing could support jobs as the economy opens up further’.

So another rate cut this year is looking likely which is great news for mortgage holders. In fact, it’s really important if you have a mortgage, you do a home loan health check. If you are paying an interest rate on the wrong side of 3%, you should definitely shop around a bit. There is healthy competition among lenders for borrowers with a high credit rating so there are good deals to be had. The cost of borrowing is historically low. If you can remember the early 90s, the official cash rate just before the last recession was 17%!

The RBA is now expected to drop rates within the next two months down to 0.10%

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