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RBA rate cut won’t help economy

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RBA rate cut won’t help economy

by Bianca Dabu 29 September 2020 1 minute read

The Reserve Bank of Australia (RBA) reducing official interest rates from their current record lows will provide some relief for mortgage holders but may not make much of an economic impact.

RBA
September 29, 2020

Some economic forecasters have speculated the RBA may be considering another cut to the cash rate of 0.25 per cent at its next monthly board meeting on 6 October.

Finsure managing director John Kolenda said while Finsure supports a rate reduction to help ease the pain for borrowers, the group believes it’s not the only solution required to help stimulate a broader recovery.

According to him, it seems unlikely the RBA would make such a move on the same day the federal government announces the federal budget and its pathway to recovery from the COVID-19 recession.

“While further rate reductions might be a welcome relief for mortgage holders, it won’t necessarily help the economic recovery,” Mr Kolenda highlighted.

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“We need further investment into the economy from the federal government by way of more economic stimulus, infrastructure spending, tax reform and business incentives.

“These are the sort of packages that are required to help the economy. The RBA reducing rates any further at the moment would have little impact on the economy and stimulating an aggressive recovery on its own.”

Mr Kolenda said it would be wise for the RBA to absorb the federal budget measures before making any more moves, although there will be some expectations of action from the central bank on Melbourne Cup Day on 3 November.

He advised mortgage holders to seek a better deal from their lenders regardless of RBA moves, even if they have been on a six-month repayment holiday.

“We are still in a highly competitive lending market and banks will offer a better deal if you are ready to resume repayments,” Mr Kolenda concluded.

“Do not be complacent about the interest rate you are currently paying as this can potentially cost you a lot of money. If you are still paying a variable interest rate with a ‘3’ in front of it then it’s time to take immediate action.

RBA rate cut won’t help economy
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Bianca Dabu

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