Interest Rate Update
The cash rate decision for April has been announced by the RBA with the rate unchanged at 0.25%.
Just 19 days ago the RBA announced a .25% emergency cut in response to the economic threat posed by the COVID-19 crisis, reducing the rate to its lowest ever level.
In response many lenders reduced fixed rates however most did not adjust their variable rates.
According to CoreLogic head of research, Eliza Owen, this rate may be in place “for years to come”. RBA governor Philip Lowe has said 0.25% is the “effective lower bound” for the cash rate, meaning further reductions wouldn’t have any added benefit for the economy. “But the reserve bank has also signalled the cash rate will also not rise for ‘some years’,” Owen continued. “The RBA has stated they would not increase the cash rate until inflation is well within the 2-3% target range, and the labour force is trending towards full employment, which has previously been referenced as an unemployment rate of 4.5%.” Owen also noted that the monetary and fiscal stimulus unrolled in response to COVID-19 thus far has seemingly been coordinated “so as not to add excessive demand for housing”. “As a part of additional, cheap funding for commercial banks, funding facilities will be extended for every dollar lent to businesses, but not to housing loans,” she explained. “Most banks have only factored rate cuts into fixed-rate mortgage products, limiting flexibility for consumers as rates hit record lows.” While reductions indeed have been primarily reserved for fixed rates, with just one of the big four lowering variable rates following the emergency 25 basis point cut last month, CBA today announced a range of cuts across its variable home loans. “Commonwealth Bank [did not wait] on the Reserve Bank today, slicing some of its variable rates by 0.28% just a few hours before the cash rate announcement,” said Canstar group executive of financial services, Steve Mickenbecker. The major cut -0.18% from its basic variable home loan for owner occupiers paying P&I and interest only with <70% LVR. For those with a 70-80% LVR, the bank cut the rate by -0.28%. However, the basic variable rate for owner occupiers with an 80-95% LVR was raised by 0.06%. For investors, CBA cut its basic variable rates by -0.15% for those with a 70-80% LVR. The bank increased its variable rate by 0.12% for investors with an 80-90% LVR. The largest cuts being awarded to loans with LVRs between 70% and 80% is a “further confirmation that the market is highly competitive for high credit quality borrowers”, according to Mickenbecker. “The lead rate is for P&I loans to homeowners, coming in now at 2.79% and positioning Commonwealth Bank lower than two of its major bank rivals, but still well short of the market leaders.”
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