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What are the chances of a cash rate cut next week?

RBA

Following just shy of three years of a stagnant cash rate, the nation’s leading economists are now predicting an imminent rate cut, and popular lenders have already responded by dropping their interest rates.

The Reserve Bank is 91 per cent likely to cut rates on Tuesday, according to economists interviewed by Finder.

Finder’s RBA Cash Rate Survey revealed that 32 of the 35 economists interviewed believe that a 25 basis point decrease will be announced after Tuesday’s budgetary meeting.

The official cash rate is currently at 1.5 per cent, which is a historically low number; however, Finder believes it will hit a new low of 1.25 per cent.

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Dr Andrew Wilson, from My Housing Market, believes Tuesday’s decision will be a rate cut due to unflattering stats released by the Australian Bureau of Statistics (ABS).

“RBA has clearly signalled its intention to cut rates and with its nominated sensitivity measure of unemployment now on the rise is set act. The release of the ABS GDP data for the March quarter the day following the rate announcement will encourage the bank to cut to be seen to be acting to stimulate the economy ahead of what is likely to be yet another underwhelming result for the economy,” said Dr Wilson.

Lenders react

Some lenders have already moved with the positive market sentiment surrounding the likelihood of a rate cut.

This positive sentiment was also boosted by the Coalition’s recent victory, meaning Labor’s plan to scrap negative gearing for existing properties was binned.

It was also boosted by the banking regulator’s moves to ease up conditions around loan serviceability for new applicants.

ING is the latest lender to drop its rate ahead of next week’s cash rate call, for those paying principal and interest on a variable package.

What can I save?

If an investor has borrowed $500,000 with a 25 point reduction on the official cash rate being passed on by the banks, the investor will save $900 a year.

Research suggests if investors switch from the current lowest variable rate on the market, which is currently 3.29 per cent, from the average variable rate of 4.91 per cent, investors could save $5,636 per year on a half a million dollar loan.

Approach with caution

However, banks might not pass on the full savings, according to Graham Cooke, Insights manager at Finder.

“If the RBA cuts by 25 basis points, this doesn’t necessarily mean banks will pass on the rate cut in full,” said Mr Cooke.

Mr Cooke’s comments are in line with those from Mortgage Choice earlier in the year, who said out-of-cycle rate cuts and hikes should be expected in this “lower for longer” environment.

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What are the chances of a cash rate cut next week?
RBA
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