Analysis of the RBA’s Rate Cut in Australia

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This week I wanted to give you a quick analysis of the impact in Australia of the rate cut seen recently.  Probably even more so that the election, this is one of the larger impacts on our economy and hence the property investing market. 

The interest rate cut in Australia by the RBA (Reserve Bank of Australia) was the first in almost 3 years!  The last being in August 2016.  Will be interesting to see how quickly and how much is passed through to consumers, but with funding costs easing for the financial institutions as well, they should be in a position to pass this on.  Next question though is how many rate cuts will we see?  It is out of character for the RBA to cut rates once then leave the table, generally we see cuts in 2’s or 3’s.  Financial markets are whispering about 2 cuts this year…bit time will tell. 

Quick analysis of the winners and losers in the market from a rate cut for you: 

Winners 

  1. Businesses 

Rate cut basically means more money in household budgets with mortgages getting cheaper and generally this means people spend more.  It can also mean that commercial loans are a little cheaper, so little more in the business’s back pocket too 

  1. Exporters 

Generally, a rate cut means a lower AUD so this can help exporters.  Interestingly though, the AUD held steady for the hours after the announcement and even firmed a little in the day or two after, so it shows the financial markets already had the rate cut priced in.  Interesting again, to see if this holds, or if the AUD drops in the coming months 

  1. Real Estate Market 

Firstly, the property owners win as the mortgage rates come down a little giving better rental returns and this can also be a driver for the market to start a turn which can drive the equity in the real estate up as well 

For real estate Agents, this can also mean a more positive sentiment in the market, putting a few more people out looking for houses, so some stronger growth for the agents 

On the flip side for Real Estate, it’s not all rosy – with increase in sentiment comes often rising prices which for first home buyers can be difficult.  Suggest to start looking and get in now if you are looking to buy your first home, before the prices jump.  Liberals plan to help with Lenders Mortgage Insurance (LMI) does help though 

  1. Jobs & Wages 

With more money coming into business through rate cuts or consumer spending this does help drive down the unemployment rate and create more jobs.  With more jobs, comes more competition for labour and therefore can increase pressure on wages.  This can be a win/win for employees and job hunters 

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Losers or little/no impact: 

  1. Credit Cards 

It is certainly doubtful we would see any cut to interest rates on credit cards – one of the biggest rorts in this country.  Unfortunately, these rates (including personal loans etc) are not linked to Reserve Bank interest rates 

  1. Savers 

The person, not the store [Symbol]  People who are good at saving can generally lose out here, with interest rates going down, so does interest earnt on savings and bonds etc 

  1. Retirees 

Retirees can see a mixed result.  If they are relying heavily on savings returns and bonds etc, this can go down, with investments in real estate etc, that can go up, so this could go either way depending on how the superannuation fund is structured 

  1. Online Shoppers 

If the AUD does drop, then be careful with that credit card on the late night shopping channels and Amazon!  Exchange rates can make goods imported from overseas more expensive and increase shipping costs 

So out of all that, how did you go?   

At this time, a move to alternative property strategies can be advantageous because particularly in these times of cheap money, people often make mistakes and end up with negatively geared results.  Is frustrating to see… Don’t be this person…  

High cashflow properties are ideal.  Give us a call to book your strategy session NOW!