As predicted by many analysts, the Reserve Bank of Australia has slashed rates from 0.25% to 0.1%, a 15-point cut. Furthermore, they've decided to buy back over $100 Billion government bonds of maturities around 5 to 10 years over the next six months.
The Australian Dollar again, the U.S dollar was down slightly at 0.44%. The ASX 200 was up around 1.88% on the announcement.
The Bank stated they believe that the "economic recovery is underway and positive GDP growth is not expected in the September quarter" despite the restrictions in Victoria. They predict that GDP growth will be around 6% over the year to June 2021.
They believe that the employment rate is expected to be high – however, it may peak at around 8%, rather than the 10% expected previously. The RBA stated that they are "committed to doing what it can to support the creation of jobs."
This is the third time this year that interest rate has been cut. From 0.75% - 0.5%, 0.5% to 0.25% and now 0.25 to 0.1%.
Treasurer Josh Frydenberg stated that many families would benefit from the rate cut may be able to and lift the country out of a recession. He references someone with a $400,000 mortgage that may save around $1,000 a year from the 0.75% - 0.1% basis point cut. With that said, interest rates are relatively low, so the benefits may be negligible to many, considering the potential further costs of re-mortgaging.
Demand for housing may increase on the rate cut, possibly helping the Australian economy boost out of the current recession caused by the Coronavirus. However, some analysts predict that the RBA's cut will not increase demand as rates are at rock bottom. ANZ" s Banking Group Ltd CEO Shayne Elliot stated that "If homeowners don't want a mortgage at 2.5%, it's not clear to me they'll want one at 2.4%."
With the lockdown forcing many Australian Citizens to stay at home, the nation's saving ratio soared to a 46-year high to almost 20%. Furthermore, there is evidence from the RBA that credit card balances are being paid off faster. These are positive factors, which may push Australia out of the recession quicker once lockdowns and the Coronavirus are in the past.
Some analysts are not convinced the RBA is not doing enough. James McIntyre, Australia economist at Bloomberg Economics, stated, "with a sluggish demand outlook and a weaker labour market justifying further policy support, it is difficult for the RBA to make a case to hold back," insinuating he believes that the RBA must do more to push Australia out of the slump.
It is essential to keep an eye on the other side of the equation, the U.S dollar, as the election approaches less than a day. Trade safe!