In its 2016 August meeting the Reserve Bank of Australia (RBA) decided to change the official interest rate from 1.75% to 1.50%, the lowest rate on record. Much of the RBA’s decision was based on the continued below trend level of inflation.
The RBA decision is based on a number of points. Firstly, it noted that economic growth in Australia is continuing at a moderate pace, despite a very large decline in business investment. Also, domestic demand, as well as exports, have been expanding at or above trend as reflected in labour market data that indicate a modest pace of expansion in employment in the near term. The RBA is also of the view that the level of lending for housing purposes has slowed a little this year and that the risks associated with a lower interest rates have diminished.
Overseas, the RBA’s view is one where the major economies are continuing to grow, at a lower than average pace. Even the underlying pace of China’s growth appears to be moderating. Lastly, financial market volatility has subsided with them returning to “ functioning more effectively”.
As noted, recent data confirms that inflation remains quite low given “the very subdued growth in labour costs and very low cost pressures elsewhere in the world”. This is expected to remain the case for some time.
Official interest rates affect the rates offered to lenders and borrowers.
These declining yields will continue to challenge income-seeking investors. Conversely, borrowers should be smiling, as the cost of their loans is getting smaller. Rates offered continue to be very competitive.
Nevertheless, there is a contrast between the lowest and the highest on offer. Below are the latest “best” rates available for both lenders and investors.
|Providers – investors||6m||1yr||3yr||5yr|
|Big Sky Building Soceity||na||3.05%||3.05%||3.00%|
|UBank Home Loan||Variable Rate||3.74%|
|ING Direct||Orange Advantage Loan||3.79%|
|Australian Unity||KickStarter Home Loan||3.85%|
|QT Mutual Bank||Mortgage Saver Home Loan||3.88%|
|State Custodians||Breathe Easy Home Loan||3.97%|
WARNING: The comparison rate applies only to the example given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees, early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.