Reserve Bank of Australia “stays on the sidelines”

by Madison Utley05 Aug 2020

At its meeting held yesterday, 4 August, the Reserve Bank of Australia (RBA) opted to hold the official cash rate at 0.25%.

It’s expected the central bank will “stay on the sidelines” and hold off on executing any further cuts even as several states struggle with renewed outbreaks of COVID-19, according to mortgage aggregator Finsure

“Official rates will most likely be staying the same for the foreseeable future,” said managing director John Kolenda.

“The RBA reducing rates any further at the moment would have little impact on the economy and could do more harm than good.”

However, while little activity is expected in terms of official cash rate movement, lenders have still been initiating further rate cuts for home loan customers. Kolenda has encouraged mortgage holders to pursue a lower rate, even if they’ve been on a six-month repayment holiday.

“Banks will offer a better deal if you are ready to resume repayments, so don’t be complacent about your interest rate as this can potentially cost you a lot of money,” he said.

Unfortunately, the current environment is less opportunistic for business borrowers, as elaborated by CreditorWatch CEO Patrick Coghlan.

“Last month’s mini-budget announcement has shown the extent that our economy has been devastated by the pandemic. With 870,000 jobs lost between March and May, the Treasurer was right in outlining that our nation has a ‘mountain to climb’,” he said.  

“By maintaining interest rates today, [the RBA] is sympathetic to the balancing act our economy faces. However, there is concern that by extending the government’s business stimulus packages, we are simply kicking the can down the road. Once the likes of JobKeeper, JobSeeker, mortgage holidays and safe harbour do eventually come to an end, there will be a seismic shock to the economy as companies will have to either fend for themselves or admit defeat. 
 
“With 10% of all businesses in Australia in danger of failing because of lack of cash, we could potentially end up seeing ten years’ worth of administration in the next six months.

“I urge business owners to seriously ask themselves if their companies are going to be viable and if they’re unsure, they should seek advice sooner rather than later," Coghlan finished.