Spring has sprung as cash rate holds at 0.25%

Today is the first day of Spring, the first day of September and also being the first Tuesday of the month, it is the day the RBA meet. As expected, nothing changed at today’s meeting with the RBA holding the official cash rate at 0.25%.

The Reserve Bank did decide to increase the Term Funding Facility allowing authorised deposit-taking institutions (or ADIs) access to additional funding at a fixed rate until the end of June 2021. This will help to retain ‘liquidity’ in the economy and help buffer it through the period of contraction (i.e. recession) ahead.

Again the RBA emphasised the severity of the contraction in the economy, the worse since the 1930s, however it also spoke to the fact that the economy is doing better than it could have. Before the second wave in Victoria, there were signs of recovery. With the excellent success of restrictions in Victoria in bringing down Covid cases, you can expect that the RBA will have a more optimistic outlook for the months ahead.

As we’ve been saying for many, many months now, the official cash rate is unlikely to go up any time soon. The unemployment rate is increasing and is unlikely to fall inside the zone where the RBA would consider increasing the cash rate any time soon.

Nation-wide the housing market has been understandably subdued, although it’s clear many of us are contemplating a shift to more regional areas. The low cost of borrowing and the significant changes in the way we work (i.e. from our home/couch/kitchen table) mean a tree or sea change is suddenly a realisable dream.

Banks are still offering flexible options to customers and it’s always worth assessing whether your current mortgage rate is the best available one for you. Contact us and we’ll make sure you are getting the best deal for you.

In today’s statement, the RBA restated its commitment to supporting the economy saying that fiscal and monetary support will be required for some time. This support includes Australia’s financial institutions that have ‘strong balance sheets and access to high levels of liquidity’.

In a world of uncertainty, we’re willing to bet the cash rate will stay at 0.25% at next month’s meeting at the very least.