RBA Cut and COVID-19, what does it all mean?
Yesterday the RBA announced a rate drop of 0.25%, lowering our cash rate to 0.50%. Following on from this, the majority of our banks have reduced their variable interest rate by the full amount, in some instances seeing interest rates sub 3.0% pa.
So why the rate cut?
Reserve Bank Governor, Philip Lowe announced the rate cut was to support the economy during the global coronavirus outbreak, which has clouded the short-term outlook for the economy.
The outbreak which has spread to a number of countries has generally lowered consumer confidence. We are visiting less shopping centres, fewer shops, even fewer restaurants, which ultimately means we are spending less and therefore all of this lowers the economic output.
Lowering the countries interest rate is to spur us to spend more, keep the economy humming, and to give business confidence that their borrowings and home mortgage will cost them less. The US has also lowered their interest rates given the risk to their economy and the generally global reliance on China.
Any mention of the housing market?
Governor Lowe mentioned that the housing market is seeing further signs of a pick-up, with prices rising in most markets, in some cases quite strongly. This provides comfort to homeowners during a slightly worrying period as the value of their homes are increasing and also the mortgage costs reducing. A win on both fronts.
Our trunking advice?
In times of uncertainty, it’s always best to manage your finances wisely. Use the interest rate saving to ensure you are growing your cash buffer (maybe grab some toilet paper too with it).
Reach out to your trusted advisor, be it; financial planner, accountant or broker to see how they can assist.
Check your interest rate, generally being the largest costs to a household, it’s a great time to review your position.