Downturn might not be as severe as expected, says RBA in June meeting

The RBA continues to monitor the current downturn as it unfolds, with Governor Philip Lowe confirming that both fiscal and monetary policy decisions are working as intended.

“Over the past month, infection rates have declined in many countries and there has been some easing of restrictions on activity,” he said.

“If this continues, a recovery in the global economy will get under way, supported by both the large fiscal packages and the significant easing in monetary policies.”

While the economy is tracking better than expected, the RBA still expects a contraction of up to 10% over the June quarter. How soon domestic conditions will recover depends on how quickly Australians can regain confidence in their finances. 

Consumer spending fell dramatically as a result of the economic shutdown. The fear now is that even once the virus is contained and restrictions are lifted, the cautiousness that many are exhibiting will persist.

The drop-off in business investment will be another sticking point. In its quarterly outlook released last month, the Board said uncertainty stemming from the pandemic has led many firms to defer or cancel non-essential capital expenditure.

RELATED: RBA Governor warns against cutting off JobKeeper prematurely

As expected, the cash rate was held at the record low of 0.25%. The RBA has repeatedly said that official interest rates will remain at their current levels until inflation is within the 2-3% target range and progress is made towards full employment.

But some prominent voices have called on the RBA to rethink its position. Westpac chief economist Bill Evans recently urged the Board to take interest rates negative to allow mortgage holders and businesses to borrow at even lower costs. 

As for the RBA’s bond purchasing program, activity has been dialled back considerably, with the Board purchasing government securities on only one occasion since its last meeting. 

“The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS,” Lowe said.

“The target will remain in place until progress is being made towards the goals for full employment and inflation.”

The big question now is whether Australia is technically in the midst of a recession. While the economy is expected to shrink over the June quarter, there’s still some uncertainty about the previous one. We’ll have a verdict on Wednesday with the release of the GDP report.

What’s the outlook for home loans?

The current interest rate setting has put mortgage rates at all-time lows. Among providers in our database, the average 2-year fixed home loan rate sits at 2.98% p.a., while the average variable rate is slightly higher at 3.43% p.a.

Cuts from lenders have flowed through continuously since March, with the majority levelled against fixed rate options. Over the last two months, Mozo recorded 578 cases of lenders reducing fixed rates.

At the time of writing, the lowest fixed rate in our database is 2.19% p.a., which is offered by a number of lenders, including Well Home Loans (2.44% p.a. comparison rate*), Reduce Home Loans (2.54% p.a. comparison rate*), and ING (3.79% p.a. comparison rate*).

What about savings accounts?

Among providers we track, 87 have lowered their at-call savings rates since March, leaving the market average at a paltry 0.74% p.a. 86 400, Bank of Queensland and Up Bank currently offer the joint highest ongoing bonus rate at 1.85% p.a. — 1.11% higher than average.

If we consider just the big banks, the average savings rate sits at just 0.36% p.a. Out of the four, Westpac offers the highest ongoing rate at 1.05% p.a., available so long as account holders make at least one deposit per month and have a higher balance than at the beginning of the month. 

For those who don’t mind parting with their savings for an extended period of time, term deposits are a good way to hedge against further interest rate cuts. 

Judo Bank currently offers rates between 1.65% p.a. and 2.15% p.a. on 1 year to 5 terms. For those after short-term investment options, Qudos Bank’s rates go as high as 1.80% p.a. on 3 to 12 month terms.

For more information, visit our home loan, savings account and term deposit comparison pages. And if you’re after tips to keep your finances in good health amid the current crisis, browse our coronavirus financial guide.

Read last month's Reserve Bank interest rates update.

Top home loans - last updated 22 January 2022

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Smart Booster Home Loan
    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.variable for 24 months and then 2.25% p.a. variable
    2.21% p.a.

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    Details
  • Mozo Expert Choice Badge
    UHomeLoan - Discount Offer
    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Enjoy a super low rate. $0 fees to consider. Fast and easy online application. Free redraw and free extra repayments. Flexible payment terms. Min 20% deposit required.

    Details
  • Mozo Expert Choice Badge
    Celebrate Variable Home Loan
    interest rate
    comparison rate
    Initial monthly repayment
    1.89% p.a. variable
    1.89% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    Details
  • Variable Home Loan
    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Same low variable rate for all. No upfront or ongoing fees. Approval in minutes not weeks with a fast digital application. 100% offset sub account with no account or redraw fees. Comes with a Visa debit card, mobile App, and digital wallet (Apple and Google Pay). Refinance only. 25% deposit or equity required.

    Details
  • Mozo Expert Choice Badge
    Variable Home Loan Special
    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    2.02% p.a.

    Yard’s low-rate variable special home loan is packed with all features – unlimited additional repayments, free redraw, 100% offset account. Enjoy a simple online application. Special rate applies to home loan applications submitted by 31st January 2022. Low Cost Home Loan winner in the Mozo's Experts Choice award 2021.

    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.