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RBA Cuts Cash Rate: What It Means for Borrowers
The Reserve Bank of Australia (RBA) has made a significant move by cutting the official cash rate by 25 basis points, bringing it down to 3.85 per cent. This marks the second cut of the year and the lowest rate seen in two years.
Economic Context
The decision was anticipated by analysts and financial markets, with some experts suggesting a more substantial 50 basis point cut could be beneficial. As of March, headline inflation remained stable at 2.4 per cent annually, while the RBA’s preferred underlying inflation measure eased to 2.9 per cent, comfortably within the RBA’s target range of 2 to 3 per cent.
Impact on Borrowers
This latest reduction in interest rates will offer relief to many mortgage holders. Based on findings from a recent Yahoo Finance survey, 67 per cent of respondents feel that an additional three cuts are necessary for them to feel financially secure.
For an average home loan of $659,920, borrowers can expect to save approximately $106 per month if their banks fully pass the rate cut on to them. Combined with February’s earlier cut, this totals a saving of $213 each month, which translates to about $2,553 saved annually.
Canstar’s insights director, Sally Tindall, believes most lenders will apply the full cut to variable home loan customers. She also advises those who do not receive the full benefit of the cut to shop around for better deals: “If you’re on a variable rate, it’s your right to switch to a lender offering a better rate.”
Opportunities for New Borrowers
According to Don Crellin, managing director of Resolve Finance, the rate cut could stimulate the housing market further: “Every 25 basis point cut increases borrowing capacity by roughly $10,000, providing potential buyers with additional flexibility.” However, he cautions that increased borrowing capacity should not tempt borrowers into stretching their finances unnecessarily.
What’s Next?
The RBA’s next meeting is scheduled for July 7 and 8, where further discussions and potential adjustments to the cash rate could take place.
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