Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

 

 

Invest

Why cutting rates won’t spur on spending

  • November 03 2020
  • Share

Invest

Why cutting rates won’t spur on spending

By Cameron Micallef
November 03 2020

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

Why cutting rates won’t spur on spending

author image
  • November 03 2020
  • Share

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

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.

Advertisement
Advertisement

“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. 

Why cutting rates won’t spur on spending
Why cutting rates won’t spur on spending
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

About the author

author image

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

more on this topic

more on this topic

From the web

Recommended by Spike Native Network

More articles

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.