Will the RBA cut rates in August?


Tuesday 06 August 2013

Reserve Bank Governor Glenn Stevens gave the clearest indication about tomorrow's rates decision when he told a business forum last week that he saw no "serious impediments to further easing".

As growth in the mining sector continues to wane, economists hope that another cut to the official interest rate will help the Aussie dollar make a dignified descent, and boost business confidence in other parts of the economy.

All this is great news for mortgage holders who are already experiencing record low interest rates. But even if official rates drop tomorrow, it's not all champagne and celebrations as the banks may hold back on passing the full rate cut to their customers.

Why? Last week's announcement by the government to impose a 0.05% bank levy on deposits under $250,000 had the banks spooked. Although the levy won't be introduced until 2016, some pundits are already predicting the banks will look for ways to cushion the costs associated with the levy. For borrowers, this might mean that banks only pass on a partial rate cut this month

A partial cut by the big banks could fuel a switching boom, with the Big 4 facing stiff competition from smaller lenders offering stunningly low rates. Right now there are over 40 lenders offering 1 year fixed-rate loans under the 5 per cent mark.

The Greater Building Society even went as far as dropping their 1 year fixed home loan to a rock bottom 3.99% last week. So even if Glenn Stevens backflips on his statement and keeps rates on hold, you'll still be able to save big time by switching.

Whatever happens tomorrow, be sure to check back here when Mozo's Rate Chasers brings you all the action on tomorrow's Reserve Bank announcements.

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