RBA holds off for another month, keeps interest rates at 1.00%

Niko Iliakis

Monday 02 September 2019

It looks like the Reserve Bank will be taking another breather this month. Following its September meeting, the board announced it won’t be making any changes to the cash rate, opting to keep it at 1.00%. 

Rba holds original

RBA governor Philip Lowe revealed he expected the economy to strengthen in the future, but acknowledged several challenges.

“The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected.”

“Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices and turnover.”

Will the RBA cut rates again this year?

With the economy’s vital signs yet to show signs of improvement, Lowe has gestured towards further rate cuts in the near future to help move things in the desired direction. At the moment, October is the most likely bet.

“The RBA recognises that it’s going to have to cut rates, at least twice more, and the only reason that they’re not doing it quicker is because they don’t want to panic people,” said Mozo’s banking expert Peter Marshall.

“The first two cuts that we saw really didn’t help consumer confidence - in fact they hurt it. So the board is going to want to pace these cuts to show that they’re operating according to a plan.”

When the RBA does go ahead and pull the trigger, it would bring official interest rates down to 0.75% - half of where they sat at the beginning of the year.

A buffer of at least two months between cuts would give them time to take effect, and make sure we aren’t speeding too quickly down what’s shaping up to be a steep slope.

Where do home loan rates currently sit?

The RBA may have left official interest rates untouched this month, but the excitement surrounding home loans rates has yet to simmer down. As of writing, several lenders in our database offer variable rates near the 3.00% mark, if not lower.

Variable rate home loans (owner occupiers making P&I repayments)

LenderHome loanInterest rateComparison rate
HomestarStar Essentials Home Loan2.99% p.a.3.04% p.a.*
loans.com.auSmart Home Loan3.03% p.a.3.06% p.a.*
AthenaVariable Home Loan3.09% p.a.3.09% p.a.*
UBankUHome Loan Discount Offer3.09% p.a.3.09% p.a.*
Mortgage HouseRed Home Loan Early Bird Special3.04% p.a.3.11% p.a.*

But what can we expect when the RBA finally does make a move? If the second cut of the year is any indication, we’ve already reached a point of diminishing returns.

While most banks and lenders were clambering over one another to pass on the full cut in June, there was much less enthusiasm following July’s decision. The story will most likely be the same for any upcoming cuts.

“The banks will pass on a portion of it, something like 15-18 basis points, so they can be seen to be doing the right thing, but they won’t pass on all of it,” said Marshall.

What about savings accounts and term deposits?

As for savers, the RBA’s decision to leave interest rates untouched for another month might come as a relief, but there isn’t too much to be optimistic about down the track. Cuts to savings rates have only accelerated in the past few months, with 37 providers making reductions in August alone.

And anyone hoping to guard against dropping rates by locking in a term deposit will likely be underwhelmed by what’s on offer. Banks have been pricing future RBA cuts into their term deposit rates for months now, leaving the average one year rate at 1.75% p.a.

“Longer term rates are getting worse than medium term rates. Overall, the long-term outlook is not particularly cheery,” said Marshall.

So if you’re looking for someplace to put your savings, it’s vital you compare what’s out there. Our savings account and term deposit comparison pages are a good place to start. And if it’s home loans you’re after, be sure to visit our home loan comparison page for a look at the best value offers.

*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 the amount and term you entered.

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