Interest Rate – Historic Low

In News by Jeff OsborneLeave a Comment

The RBA Board decided to lower the cash rate by 25 basis points to a historic low of 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.

Good news for mortgage holders though, three of the four major banks have already announced they’ll pass on the full rate cut. Only ANZ’s decided to partially cut rates.

Some excerpts from today’s RBA’s press release:

  • The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently.
  • Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
  • Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues.
  • In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved.
  • Inflation has been quite low for some time and recent data were unexpectedly low.
  • Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector.

While it’s unlikely there will be further rate cuts in the coming months during the election campaign, there is expectation mounting that the RBA will drop interest rates further motivated by a fear of low inflation and increased confidence that they’ve taken regulatory steps to alleviate Australia’s financial stability risks.

This means the cash rate could be as low as 1.5% in the fourth-quarter of 2016.

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