Preparing for November cash rate decision

Next week's RBA meeting seems sure to bring about change – what does it mean for borrowers?

Preparing for November cash rate decision


By Madison Utley

Belief the Reserve Bank of Australia (RBA) will cut the official cash rate next week at the 3 November meeting has continued to grow, swelling to now include speculation as to how the banks will respond if such a reduction is indeed executed.

The RBA last lowered the cash rate on 19 March 2020, before leaving it on hold for the next seven meetings; now, comparison site has predicted the RBA will next week move the cash rate by 0.15% to a new record low of 0.10%.

If the prediction comes to pass, the group feels strongly there will be pressure on the big four banks to transfer the savings through to borrowers.

“Lenders have been aggressively cutting variable rates over the last six months, but by and large these cuts have been reserved for new customers, or people willing to fix their rate," explained research director Sally Tindall.  

“If the RBA cuts rates by 0.15%, the spotlight will be on the banks to see if they follow suit and pass it onto their existing customers.

“There are thousands of existing mortgage holders out there who aren’t in a financial position to switch banks. Any rate relief needs to be filtered down to them.”

Since June 2019, the cash rate has dropped by 1.25%, but the big four banks have passed on an average of just 0.86% to existing customers. 

After the central bank's last rate cut in March, three of the big four banks failed to pass it on to their variable customers and opted to cut fixed rates instead. ANZ alone passed on a cut of 0.15% to its variable rate customers in addition to lowering its fixed rates.

“While Governor Lowe has said an easing of monetary policy will ‘lessen the number of problem loans’, it will only work if the banks play their part,” said Tindall.

“With JobKeeper and JobSeeker being wound back, a growing number of Australian households are facing financial stress. In a time when ever dollar counts, a mortgage rate cut of 0.15% would save the average homeowner $33 a month.”

However, while clear in her belief a rate cut would benefit many Australians, Tindall acknowledged the RBA has a “balancing act” to play.

“Any rate cut is likely to be passed on to the millions of Australians who have money in the bank. However, with savings rates already hovering just above zero, many savers have already given up on the prospect of earning interest from their income,” she said.

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