Back to back cuts: The RBA drops official interest rates to 1.00%

Niko Iliakis

Tuesday 02 July 2019

In its latest meeting, the Reserve Bank has decided it will be cutting the cash rate by 0.25%, bringing it to a record low 1.00%. 

This marks the first time since 2012 that the Board has cut in consecutive months. RBA Governor, Philip Lowe said the decision comes as part of a push to support employment growth and reinvigorate a slowing economy.

"Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target."

"The central scenario for the Australian economy remains reasonable, with growth around trend expected. The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income is expected to support spending."

RELATED: What is the cash rate and how does it affect you?

Lowe gestured towards a July cut in a speech to the Committee for Economic Development of Australia last month, indicating that unemployment figures - which have crept up as of late - had become a central concern. 

At the same time, he acknowledged that reductions to the cash rate can only do so much to stimulate the economy, and should be accompanied by sustained efforts by the government to create jobs, such as by investing in infrastructure.

“If the government was stepping in and doing other things to stimulate the economy, then perhaps the RBA would sit on its hands for a while,” said Mozo banking expert, Peter Marshall.

“But there’s no real sign that that’s happening. And with the government’s tax package still in limbo, it makes sense that we would see another cut.”

Will lenders pass on the full cut again?

Now that the axe has come down on official interest rates, the big question is whether we’ll see this flow through to variable home loan customers. We’ll be tracking changes from key lenders below, so make sure you check in periodically.

Following last month’s cut, we saw an action-packed few weeks in which 44 lenders dropped variable home loan rates, with 27 doing so by the full 0.25%.

Back then, the Royal Commission still loomed large over the banks, so there was a lot of pressure to provide relief to customers in the form of a rate reduction. 

But according to Marshall, that pressure has since eased and we’re unlikely to see a similar volume of activity this time round. 

“I think it will be on a bank by bank basis. The theory is that the closer we get to zero, the bigger the hit is to the banks’ net interest margins, and if that is the case, then they’re going to be holding back more and more of each rate cut,” he said.

For an idea of where rates currently sit, be sure to visit our comparison tables, where you’ll be able to compare fixed and variable rate home loans. And if it’s savings accounts you want to look at, head over to our savings accounts comparison page.

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