With a newly formed government now in power, and extremely weak inflation levels, the Reserve Bank of Australian (RBA) has decided to reduce the official cash rate by 25 points, taking it to the new historical low of 1.5%.
Governor Glenn Stevens of the RBA had this to say in his official statement:
“Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.”
“Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. The most recent information suggests that dwelling prices have been rising only moderately over the course of this year, with considerable supply of apartments scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished.”
So, what does all this mean for you? Well if you have a mortgage then the news is good there are some great rates around. The banks however have not passed on the full cash rate drop as they often buy money from external providers (Over Seas Banks).
If you are looking to leave your money with the banks in a savings account then the news is not great, as the interest you expect will probably be lower than the inflation rate, which means your money is going backwards and not worth as much as when you put it in there.
I would be having a look at other investment options and maybe buying an investment property, share or managed funds could be an option.
As this month’s decision has proved, rates can change at any time. Now is the time to consider whether your current loan is the right one for you, right now.
If you would like me to have a quick check and see if we can get you a better deal on your mortgage (and it’s a lot easier to change than you think) then give me a call on 0434 449 455.