Research released by comparison site Finder suggests the Reserve Bank of Australia (RBA) is likely to back up last month’s cut, with 68 per cent of economists predicting another cut.
Shane Oliver, AMP Capital chief economist, believes more cuts are needed to get the Australian economy back on track.
“The June 0.25 (percentage point) rate cut has not been enough for the RBA to achieve its objective of lowering unemployment, boosting wages growth and pushing inflation back to target. More rate cuts will be needed,” said Mr Oliver.
Nearly three-quarters of experts foresee the bottom of the cycle at 0.75 per cent or lower. However, almost a third, expect to see the cash rate at 0.50 per cent.
Graham Cooke, insights manager at Finder, believes lenders should be gearing up to get busy with further rate reductions.
“The RBA will have its scissors out for the foreseeable future to try to stimulate inflation and reduce unemployment, and lenders should be ready to follow suit,” said Mr Cooke.
“The heat is on for those banks who only passed on a partial rate cut (less than 25 basis points) after the June rate reduction. Doing the right thing by their customers this time around – by passing on a cut in its entirety – could see them redeem themselves,” continued Mr Cooke.
Home loans slashed
When the RBA cut the cash rate to an all-time low of 1.25 per cent in June, lenders reacted by quickly reducing the rates charged to mortgagees.
According to Finder, more than 1,000 products have reduced their rates.
“So far, we’ve seen more than 700 variable rate products reduced in June alone, with more than 1,000 rates reduced if you include fixed rate loans,” said Mr Cooke.
What more cuts mean for borrowers
“If the cash rate does get to 0.50 per cent, down from 1.50 per cent in May, and your bank were to pass on all of the four rate cuts in full, an average mortgage-holder, $384,700, could be saving nearly $3,000 a year on their mortgage,” Cooke said.
Why not one big cut?
With more cuts on the way, home owners are looking like the big winners as the cost of a variable loan will continue to fall.
While one big rate cut would get the rate to where the Reserve Bank wants, Nicholas Gruen of Lateral Economics believes it could be seen as a sign of panic.
“I’ve argued that larger steps than [25 basis points] would be apposite, but smaller ones convey a less panicky picture to onlookers,” Gruen said.