Why to care about the all-time low cash rate

by Madison Utley04 Mar 2020

The RBA’s decision to bring the official cash rate down to 0.50% yesterday was “widely expected”, but not exclusively attributable to the growing concern around coronavirus, according to CoreLogic head of research Tim Lawless.

While the sicknesses’ spread is indeed negatively impacting both the Australian economy and household sentiment, many of the other metrics by which the RBA assesses the health of the economy have also come in below par.

“The cut comes as inflation remains well below the RBA target range, labour markets hold plenty of slack with an underemployment rate of 8.5%, and wages growth tracks at a near record low of 2.2%,” said Lawless.

While lower interest rates are often linked to an increase in housing demand and growth in property value, Lawless doubts this cut will add fuel to the market given the current economic climate and general lack of consumer confidence.

“The latest rate cut is unlikely to be fully passed on to mortgage rates,” he said.

“Buying or selling a home is a high commitment decision; if consumer confidence slips further from already low levels, we could see Australian households sit on their hands rather than decide to buy or sell, which would weigh on market activity.”

However, according to Finsure managing director John Kolenda, the “basic fundamentals” of the domestic economy are solid despite the challenges faced in the form of bushfires, floods and the coronavirus. In fact, he has encouraged brokers to look for the positive he sees in the current state of affairs. 

“In this environment, we are likely to see an increased interest in property as a safe haven with a stock market correction,” he said.

“Interest rates look like they are staying low for the foreseeable future, maybe for the rest of this decade.”