Will the RBA cut rates again in July?

By Niko Iliakis ·

With the RBA’s next meeting less than a week away, it's looking more and more likely that we’ll see another reduction to the cash rate. RBA Governor, Philip Lowe said as much a few days ago, stressing that while the economy’s vital signs have remained fairly stable, there’s a lot of room for improvement. 

Why so soon?

In a recent speech to the Committee for Economic Development of Australia in Adelaide, Reserve Bank Governor, Philip Lowe pointed to less than ideal employment figures as a sign that another reduction to the cash rate could be in order.

“We remain short of the unemployment rate associated with full employment, there is significant underemployment and there is further potential for labour force participation to increase when the jobs are there,” he said.

Wage growth, which is closely tied to inflation, has also been sluggish. While wages have trended upwards somewhat over the past year, growth has been modest - particularly in the last two quarters - and confined mostly to the private sector.

“It is not unrealistic to expect a further reduction in the cash rate as the Board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target,” Lowe said.

At the same time, the Reserve Bank Governor admitted that there are limitations to what monetary policy can do, and urged the government to take steps of its own to stimulate the economy. 

A two-pronged approach focusing on increased spending on infrastructure and encouragement of investment and innovation within firms could see some much-needed growth in employment, he advised.

What will another rate cut mean for mortgages?

When the RBA cut official interest rates last month, we were pleasantly surprised by the amount of lenders who passed on the full cut to their home loan customers —  42 in total. But according to Mozo’s banking expert, Peter Marshall, borrowers shouldn’t count on their bank’s generosity this time round.

“While most banks passed on the full RBA rate cut last time it's unlikely they will do so again. Expectations were high that the banks should do the right thing following the Royal Commission, but there's little chance that will apply to the next rate cut,” he said.

“Smaller lenders however really compete on rate so they will have to implement the full cut to keep up with their competition.”

What about savers?

As for deposits, the outlook is grim. In the time since the RBA last cut we’ve seen 41 providers reduce rates for savings accounts and 67 reduce rates for term deposits. If the Board does go ahead with the cut in July, this trend will only continue. 

“Another rate cut is terrible news for savers. Term deposit rates have been eroded for many months now, so even the best rates are hardly worth considering,” said Marshall.

“To get the best rates savers have to be prepared to do their research, then switch their money to whichever savings accounts are offering the top rates that they can meet the bonus rate conditions for.”

With many ongoing savings rates heading towards 0%, particularly those offered by the big banks, it’s more vital than ever that Australians shop around. Check out some high interest savings accounts below, and if you’d like a more comprehensive look, be sure to visit our savings account comparison page.

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