Last June, Treasurer Josh Frydenberg, also the Liberal Party Deputy Leader, announced that the country was in recession. The lowest point for the past 29 years was due to the pandemic and measures that the government had to take to contain the disease.
For this reason, the unemployment rate raised to 7.1 per cent. Around 932,000 people lost their jobs. Aside from that, the GDP fell by almost 7 per cent.
Because of the issues brought by the coronavirus, Aussies have had a hard time. As a result, they saved trifold than they did before.
Although it can be good for an individual basis, it can hurt the long-term economy because of the lack of patronage.
One of the things that the government and financial institutions can do is stimulate spending. One way to do it is by cutting from interest rates.
Aside from that, cutting from rate also makes loan repayments easier after the provided deferment period.
Because of this, the central bank, the Reserve Bank of Australia (RBA), has already cut its interest rate at 0.25 percent in March, the lowest in the 30 years of history. This move has expected to provide additional relief for several Aussies who cannot make immediate repayments after the deferment period.
In November, there are speculations that the rate will even go lower up to the point that it will mark the history if the central bank acts on it. Executives implied the cut to become as low as 0.15 to 0.1 per cent.
Westpac’s chief economist Bill Evans believes that the rate will be at 0.1 per cent.
All these speculations can become possible in November. Evans added no reason for the board to delay because of its commitment to full employment and to reach the target inflation decision. Aside from that, many Aussies have expressed their confidence in Australia’s financial system even if banks set lower policy rates.
The forecast for the cutback will take place on November 3. This cutback aims to support businesses, income, and employment in Australia. It also encourages Aussies to pay mortgage loans because of the lower repayments if this cutback occurs.
The cutback cans save Aussies as much as 33 dollars from their loans.
Economists initially predicted that the next cutback would take place earlier this month, on October 6. However, it did not happen because it had to coincide with the federal budget release.
Despite the cutbacks, RBA promises to maintain the current policies until everyone gains full employment and deems working. This policy also helps households and businesses to pay for lower loan costs.
If the central bank has to cut its rate, the other banks should follow it too. Recently, ING and the Commonwealth Bank have already cut almost 0.25 percent average on its 57 products. For this reason, it can harm the federal budget too.
According to the RBA Governor Philip Lowe, the incremental cut back on the cash rate will not give any material difference. According to him, a 5 to 10-point movement cannot make much difference, although people cannot get help as much from it.
The root of such a weak economy lies in the pandemic, shutdowns, and lack of confidence. The problem does not lie in the price and credit availability.
When the economy opens, people should expect more monetary easing through cutbacks to gain more economic traction.
The public can see the changes in these interest rates cutbacks through loans and savings accounts rates. Nowadays, it reflects more on mortgage loans because many Aussies buy properties nowadays, despite the economic issues and the pandemic effects. It is because many Aussies believe that now is the best time to buy a property.
Aside from loans, Aussies can feel the change in their savings accounts’ interest rates. Because of the cutback, banks also set interest rate cutbacks on savings accounts. Today, a total of 67 banks, including the major banks, cut an average of 0.17 per cent.
However, many Aussies have already expected it and given up on earning some money from the savings accounts’ interests.
Thus, Aussies can save more money at around 33 dollars by borrowing money than saving their money in the bank because of the deflated interest rates.
Since the cutback in March and the forecast of the all-time cutback in November, the four major Australian banks have made each move to adapt. The National Australia Bank (NAB), Commonwealth Bank, and Westpac have not submitted a recent cut-rate for customers’ mortgage loan variables. However, the ones who benefitted from the cutback are the new customers who signed up for fixed-rate mortgages.
On the other hand, Australia and New Zealand Banking Group Limited (ANZ) have submitted a cut-rate of 0.15 per cent variable rate.
However, all of them have passed their previous rates that have reached 0.86 per cent since June 2019, dropping to 1.25 per cent.
Nowadays, everyone has been keeping their eye on the big four banks if they pass cuts.
Aside from the banks, several lenders have also cut their variable rates in recent months, but only for new customers or people who want some fixings on their rates.
Because of the continuous decrease in the interest rates, there is inevitable speculation about reaching negative interest rates. If it happens, this set up will encourage people to loan money to acquire an interest rate on their savings accounts.
However, Lowe clarified that it would be far from happening. It will create a more serious problem, which will hurt the recovery of employment and other economic issues.