RBA holds cash rate at 0.25% in September
Tuesday 01 September 2020
The Reserve Bank of Australia kept official interest rates on hold at its September meeting this week. The cash rate currently sits at the historic low of 0.25%, where it has remained since late March.
In his post-meeting statement, RBA governor Philip Lowe said the Bank had decided to increase the size of its funding facility and extend its availability until late June 2021.
“Under the expanded Term Funding Facility, authorised deposit-taking institutions (ADIs) will have access to additional funding, equivalent to 2% of their outstanding credit, at a fixed rate of 25 basis points for three years,” he said.
“This extension will ensure that all ADIs continue to have access to the Term Funding Facility after the end of September, when the window for drawings under the initial allowance of 3% of outstanding credit closes.”
The Board has long said that economic recovery will depend on containment of the virus. While there were faint signs the economy could bounce back sooner rather than later, the Victoria outbreak has pushed those hopes further away.
In the baseline scenario considered by the Board, unemployment is expected to swell to 10% by the end of 2020 before settling at around 7% by 2022.
Lowe once again said the cash rate will remain at its current setting until progress is made “towards full employment and it is confident that inflation will be sustainably within the 2–3% target band”.
According to past statements, these conditions are unlikely to be met for at least three more years.
In the lead up to today’s decision, Westpac chief economist Bill Evans said the Board’s lack of clarity around what constitutes full employment gives it “maximum flexibility” around the policy outlook.
While there’s little left in the Bank’s economic toolkit, today's decision reveals a willingness to adjust its stimulus package if conditions warrant it.
On the government’s role, the Board continues to back the flow of support to Australian households and businesses, saying it will need to be maintained for some time if the labour market is to recover.
GDP data released tomorrow is expected to confirm Australia’s first recession in nearly 30 years.
How are home loans currently faring?
The RBA’s efforts have seen mortgage rates fall to record lows, with CBA data showing an uptick in mortgage applicants taking advantage of fixed rate loans.
Among providers we track, the average fixed home loan rate is 2.56% p.a. for 1-year terms, 2.52% p.a. for 2-year terms, and 2.59% p.a. for 3-year terms. Meanwhile, the average variable rate sits at 3.36% p.a.
Lenders are also making accommodations for borrowers with low LVRs. That includes neobank 86 400, whose new tiered pricing gives customers with a 60% LVR access to a 2.59% p.a. variable rate (2.87% p.a. comparison rate*).
Online lender Athena Home Loans also launched AcceleRates, a dynamic pricing model which automatically reduces a borrower’s interest rate as they pay down their loan.
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.
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