Invest
Why cutting rates won’t spur on spending
Ahead of a possible rate cut, new research has found that lowering the official cash rate is unlikely to lift consumer spending.
Why cutting rates won’t spur on spending
Ahead of a possible rate cut, new research has found that lowering the official cash rate is unlikely to lift consumer spending.
The Reserve Bank of Australia (RBA) is expected to reduce the official cash rate from 0.25 per cent to 0.10 per cent when it meets on Tuesday, 3 November.
Canstar survey data has revealed that lower interest rates do not encourage Australians to spend, with only 6 per cent saying lower rates are a catalyst to spend in the next 12 months.
Instead, higher wages, improved savings interest rate and job security will get Australians to empty their wallets.
Canstar group executive, financial services, Steve Mickenbecker said a cash rate reduction is unlikely to have the desired effect.
“With existing home and business borrowers unlikely to see much of the cut and the former unlikely to spend it even if they do, the stimulus of a rate cut to the economy will be very modest,” said Mr Mickenbecker.
“Borrowing rates are so low already that a cut is largely irrelevant. Even if passed on fully, a cut of 0.15 per cent to the average $400,000 over 30 years will lower the monthly repayment by $33, not enough to make much of a difference to borrowers’ spending and house purchase intentions.”
Mr Mickenbecker said changes in the rate are “largely symbolic”, with banks able to get swap rates below 0.10 and the three-year government bond rate being 0.135 per cent.
The financial expert also pointed out that money spent in the economy from savers could disappear due to lower rates.
“Unfortunately the people who expect spending stimulus from increased savings rates will not see any joy, as the trend of rate cuts for savers is likely to continue. No bank is keen to put a zero or negative base rate into the market, but savers can expect further cuts to bonus rates and introductory rates.”
In 2020, the Reserve Bank has cut the cash rate by a total of 0.50 percentage point. Following is a snapshot, according to Canstar data, of what the banks and lenders have cut rates by during this time.
About the author
About the author
Spending
Aussie households spent $368 a week on transport after petrol price surge
Fuel costs have increased by 40 per cent over the past year, a new report from the Australian Automobile Association has revealed. ...Read more
Spending
Voters say reducing the cost of living should be the government’s top priority
Aussies have ranked high cost of living as the top issue that needs to be addressed by the next government. ...Read more
Spending
Bodies back Labor’s commitment to stronger BNPL regulation
All parties should commit to stronger regulations for the BNPL sector, according to Financial Counselling Australia. ...Read more
Spending
Household spending surges led by retail and recreation
Spending on retail, recreation and hospitality have continued to climb as COVID-19 case numbers and restrictions have eased. ...Read more
Spending
Banks extend financial assistance to flood-affected customers
A range of assistance is available from major banks to those impacted by flooding in NSW and Queensland. ...Read more
Spending
Sydney ranks among top data centre markets in the world
Sydney ranked eighth globally and clinched the third spot in the Asia-Pacific data centre market as the industry continues to expand at a breakneck speed. ...Read more
Spending
The trends driving consumer change in 2022
Global research has provided insight into the top consumer trends for the 2022 calendar year. ...Read more
Spending
Household spending takes a hit after strong December
Strong spending over the Christmas shopping period in December has been followed by a weaker January. ...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Spending
Aussie households spent $368 a week on transport after petrol price surge
Fuel costs have increased by 40 per cent over the past year, a new report from the Australian Automobile Association has revealed. ...Read more
Spending
Voters say reducing the cost of living should be the government’s top priority
Aussies have ranked high cost of living as the top issue that needs to be addressed by the next government. ...Read more
Spending
Bodies back Labor’s commitment to stronger BNPL regulation
All parties should commit to stronger regulations for the BNPL sector, according to Financial Counselling Australia. ...Read more
Spending
Household spending surges led by retail and recreation
Spending on retail, recreation and hospitality have continued to climb as COVID-19 case numbers and restrictions have eased. ...Read more
Spending
Banks extend financial assistance to flood-affected customers
A range of assistance is available from major banks to those impacted by flooding in NSW and Queensland. ...Read more
Spending
Sydney ranks among top data centre markets in the world
Sydney ranked eighth globally and clinched the third spot in the Asia-Pacific data centre market as the industry continues to expand at a breakneck speed. ...Read more
Spending
The trends driving consumer change in 2022
Global research has provided insight into the top consumer trends for the 2022 calendar year. ...Read more
Spending
Household spending takes a hit after strong December
Strong spending over the Christmas shopping period in December has been followed by a weaker January. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
