Tuesday, 01 October, 2019
Terry McCrann: Reserve Bank likely to cut rate even further
Terry McCrann: Reserve Bank likely to cut rate even further
Today’s interest rate cut could just be the beginning — the rate’s now at a mind-boggling all-but zero 0.75 per cent and could conceivably go to zero, writes Terry McCrann.
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October 1, 2019 3:19pm
The big message out of today’s official interest rate cut is that the Reserve Bank is prepared to and almost certainly will cut it even lower.
At the start of the year an official RBA rate of even 1 per cent was almost literally unimaginable. Now even that has disappeared in the rear-view mirror. The rate’s now at a mind-boggling all-but zero 0.75 per cent and could conceivably go to that actual zero.
RBA governor Philip Lowe’s words were unambiguously clear and unusually blunt.
The RBA is prepared to “ease (that’s to say, cut) monetary policy further if needed” — to, as he put it, “support sustainable growth in the economy, full employment and the achievement of the inflation target over time”.
The critically important thing to understand is that Lowe cut — and is prepared to cut again — even though he thinks the global economy is doing OK and the local Aussie economy is probably picking up.
He noted a — true, ‘gentle’ — turning point in the June half-year.
That poses a big, big question: what if he’s wrong? What if the sky falls in? Back in 2008 when the GFC hit, the RBA rate was at 7.25 per cent. It was able to and did cut, cut, and indeed slash.
Now the RBA’s rate is one thing, the rates that actually matter to you are what the banks charge on their loans — mostly home mortgages — and what they pay on deposits.
The bad news is that borrowers are most unlikely to get the full 25 points. Two months ago when the RBA last cut, the ANZ followed almost within a minute with the full 25 points. This time, some 30 minutes after the cut it hadn’t said anything.
The contrasting ‘good’ news is that the banks are also unlikely to cut deposit rates by the full 25 points across the board.
Unfortunately, it’s mostly because they can’t. Many — most — of their rates are already at zero or such token points above that they haven’t even got 25 points to cut.
So what happens if — when — the RBA cuts again?
We could see almost no change in actual rates, right across the board. Right across BOTH boards — both on the deposit side and on mortgage rates.
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