RBA Newsflash – September 2020


Updated September 1st 2020

Frank Schiraldi

CIB Finance

The Reserve Bank of Australia has again held the cash rate at 0.25 per cent at its September meeting, which is a vote of confidence in the economy.

While this should provide some support for the property market, other factors are leading to flat conditions heading into the spring selling season.

One of the reasons why the RBA has held the cash rate is to provide a sense of stability in the economy.

Expansionary monetary policy such as cutting the cash rate is used to assist the economy when it’s declining in health.

The RBA cutting the cash rate further may impact consumer confidence as it signals the economy is in trouble.

The RBA’s decision to hold the cash rate at 0.25 per cent means interest rates on loans will remain stable, which will help many households and businesses manage their cash flow.

This means businesses are able to keep operating at current levels, ensuring stable or increasing employment and contributing to a healthier economy outlook.

The cash rate setting is appropriate for the moment. But the RBA may need to reduce the cash rate in the future to support the post-COVID-19 pandemic economic recovery.

The central bank used a lot of its firepower in March when it cut the cash rate to 0.25 per cent, introduced a three-year yield target of 0.25 per cent and announced a cheap funding facility for banks

Subsequently, the pressure has been on the federal government to supplement falling household incomes through JobKeeper and JobSeeker and provide financial assistance to households through new policy options like early access to superannuation.

So for now, the Reserve Bank has probably done enough to keep monetary conditions very easy for households and businesses. But, looking ahead, more support is likely to be needed for the economy as GDP growth is unlikely to get back to pre-COVID levels for another two years.

The RBA has also extended the size of the term funding facility and extended banks’ access to low-cost funding until the end of June 2021.

More support from the RBA is likely to come via more bond purchases, which could start in early 2021.

Property market outlook

While low interest rates help support home prices and the property market in general, the rising unemployment rate and uncertainty about the future economic environment is negative for home price growth in Australia.

The lockdowns in Victoria are especially negative for property prices in the state.

While economic growth is slow and the unemployment rate is high, there could be another 10 per cent fall in national property prices over the next year, with the largest falls in Sydney and Melbourne.

The RBA’s decision to hold the cash rate will stabilise consumer confidence. This is good news for the property sector as stable or increasing consumer confidence translates to rising inquiries or demand. If people continue to be confident, they will continue to buy and sell in the market.

Race to the bottom

Even though economic conditions are challenging, borrowers are benefiting from the persistently low-rate environment because the interest rates they are paying are also low.

The most competitive rates at the moment are from the non-major lenders. There are good rates across investor and owner-occupier loans from the likes of Macquarie, Citibank, HSBC.

There’s never been a better time to refinance.

Credit is cheap right now and the banks are fighting it out for new customers.

So it’s the ideal time to refinance if your lender won’t negotiate.