The RBA has announced its third rate cut for the year, slashing an already historically low interest rate.
Despite cutting rates to 1.25 per cent in June, the RBA still considers further economic stimulus to be required, after already moving the official cash rate to 1.00 per cent in July, and again today to 0.75 of a percentage point.
Top market and economic experts are not surprised with today’s move following higher than expected unemployment figures.
In the lead-up to today’s decision, comparison site Finder had surveyed 45 of the nation’s leading economists and commentators, and found a majority to be expectant of today’s cut.
Mortgage Choice’s Susan Mitchell was one of the experts that saw economic data as predictive of a rate change.
“The August labour force data revealed an increase in the unemployment rate, as well as an increase in the underemployment rate, which is now in line with its recent peak,” she said.
“National Accounts data released after the September monetary policy meeting revealed that the economy grew below what the RBA had forecast a month earlier.”
Finder’s survey has foreshadowed even lower rates in the future, with one in three experts surveyed expressing an expectation for rates to fall further still, to 0.50 of a percentage point by the middle of next year.
Five economists expect the rate to go all the way to 0.25 of a percentage point, with one predicting rates to fall to zero.
Savings for investors
Finder insights manager Graham Cooke has stipulated that as a result of the cut, borrowers will win at the expense of savers.
With a rate drop to 0.75 of a percentage point, if your lender were to pass on the cut in full, “an average mortgage holder could save $19,000 over 30 years on their mortgage”, Mr Cooke outlined.
Analysing today’s decision
Former Australian treasurer Peter Costello anticipated today’s announcement, having cited Dr Lowe’s speech last week to note that world banks are currently having “a bit of a race to have the lowest exchange rate”.
However, he has argued that the effectiveness of monetary policy is diminishing as rates fall.
“Do you hear anyone saying, ‘I wouldn’t have done it at 1 per cent, but I’m going out there now that it’s 0.75’?” the former treasurer asked.
