The Reserve Bank of Australia (RBA) held the official cash rate at 1.5% in today’s interest rate announcement amid low inflation and global market turmoil.
The announcement came as no surprise to markets, with only minor speculative movements in the USD/AUD exchange rate.
For our readers that aren’t financially literate, the RBA uses the cash rate (interest rates) to affect the behavior of borrowers and lenders, economic activity and ultimately the inflation rate.
The goal of the RBA is to maintain inflation between 2-3%; this is seen as healthy growth in the Australian economy. Inflation below this may indicate a slowing or recessive economy, and in this case rates would be eased by the RBA to encourage spending and ultimately maintain the 2-3% inflation.
Inflation is the general rise in prices over time.
Australia’s cash rate has remained relatively static since 2016, with borrowers rejoicing in low rate loans, savers on the other hand have had to enter other markets, such as property and equity markets, to attract better returns on their investments, particularly superannuation.
What does today’s announcement mean for mortgage holders?
Well there are two sides, kind of a double-edged sword in many respects. On the upside, your repayments remain low or lower, as for the value of your property it could go two ways, unfortunately its not all up, as there are factors at play that could see property prices fall. You see, if the RBA holds or lowers rates its because the economy isn’t performing so well. Contrary to popular belief interest rate holds or reductions aren’t necessarily a good thing, rather they are an indication that the economy isn’t performing as well as it should be.
To help cheer you up, the effect of interest rates reductions is to stimulate the economy, in turn holding your property's value. There is however, that the efforts by the RBA don’t go to plan and the economy continues to slow, in this case property prices would be destined to fall.
So why all the doom and gloom when rates get increased? Well you can thank the media for that. In fact, interest rate rises are kind of a good thing, well for the economy anyway. Sure your repayments might rise if you don’t have a fixed rate loan, but your business or job would be more stable with growth, property prices probably would have risen and the Australian economy would be growing. Interest rate rises are a sign of prosperous times in a well balanced economy.