RBA slices the cash rate down to a razor-thin 0.50%

Posted: 3 March 2020 2:30 pm

Variable mortgages set to get even cheaper as the cash rate drops to a level never seen before.

The experts said another cash rate cut was coming soon, but stock market woes and the economic impact of the coronavirus accelerated the Reserve Bank's decision to cut the official rate again today.

"The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected," said Reserve Bank Governor Philip Lowe in this afternoon's statement on monetary policy.

This is now the fourth rate cut since June 2019. The previous cash rate of 0.75% was historically low and now it's even lower at 0.50%.

The official cash rate determines the overnight borrowing costs of lenders and has a direct impact on variable rate home loans. Most lenders pass on some or all of the rate cut to their customers on variable mortgages.

And a lower interest rate means cheaper mortgage repayments. It also means savers will get lower interest rates on their savings accounts. Fixed rate mortgages will not be affected by the cut.

Here's how the cash rate has changed over time

How will the cut affect your repayments?

If you have a variable rate mortgage and your lender passes on the full cut, your interest rate would drop by 25 basis points. In other words, if your rate was 2.84% before the cut, it would now be 2.59%.

Here's how the cut would change your repayments (assuming a 30-year loan term) with three different loan amount scenarios.

Loan amount 1$400,000$400,000
Monthly repayment$1,653$1,600
Yearly savingN/A$636
Loan amount 2$500,000$500,000
Monthly repayments$2,066$2,000
Yearly savingN/A$792
Loan amount 3$600,000$600,000
Monthly repayments$2,399$2,479
Yearly savingN/A$960

But your lender isn't obligated to pass on the cut. You should definitely check with your lender and then see how your rate compares to other offers on the market.

If you're not getting the cut, and there are better deals out there, then it might be time to refinance.

Why is the RBA cutting again?

As recently as last Friday, only 15% of the experts in Finder's RBA cash rate survey predicted a cut this month. House prices have continued to rise, buoyed by the low cash rate.

AMP chief economist Shane Oliver said that a cut was likely because of "the uncertainty around Covid-19 and its impact globally... and given we are so far from full employment", but also said that "growth should rebound in March".

But the economic writing was on the wall. And then the S&P 500 dropped 12%, the biggest one day fall since 2011. Falls in the Australian dollar and weak jobs data strengthened the case for a cut.

CoreLogic head of research Tim Lawless explained that "inflation remains well below the RBA target range, labour markets hold plenty of slack with an underemployment rate of 8.5 per cent, and wages growth tracks at a near record low of 2.2 per cent".

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