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RBA board has met on Tuesday the 4th of August 2020 for their cash rate decision. The RBA board decided to leave the cash rate at 25pts. The board also has set a 3-year cash rate and yield target of 25 basis points. Representing a record low RBA cash rate.

Australian Economy

The global economy is experiencing huge challenges with domestic GDP growth as they come to terms with the coronavirus. As each country deals with this health crisis, many industries are experiencing a contraction in demand. As a result, this is dragging on international trade.

Globally low-interest-rate environments are expected to support domestic economies. Whilst locally, the Australia economy is going through its biggest contraction since the 1930s.

Growth in Housing Market August 2020

Conditions in Sydney continue to be resilient. The recent Melbourne lockdown has buyers with a watch and sees mentality with minimal stock transactions. Regional towns and cities are experiencing a demand for quality stock.

Growth in housing credit has been driven by refinancing, with some demand for owner-occupiers within the FHB segment. Credit to investors has continued to soften.

Since the last interest rate cut, we witnessed lenders pass on between 18 to 25 pts in a rate cut saving. Important to note this reduced the cost of variable loans. Customers on fixed loans will not experience the interest rate savings.

The lenders have since repriced new fixed-rate loans with record lows interest rates. You can read more about the refinancing process or the process of purchasing a new property.

Lower mortgage rates will boost the aggregate household disposable income, which should feed into household spending and the saving rate.

As Australians deal with the coronavirus, the economy is being supported by the substantial, coordinated and unprecedented easing of fiscal and monetary policy. The Australian Government’s recent announcement that various income support measures will be extended is a welcome development and will support aggregate demand. It is likely that fiscal and monetary stimulus will be required for some time given the outlook for the economy and the labour market.

August 2020 Inflation

The inflation across the country is has softened, especially as household demand has fallen away. With the coronavirus, target inflation expected to remain under 2% in 2020 and 2021, and range between 1 and 1.5%

The RBA board made the decision to keep the cash rate on hold

If you would like to read more from the RBA decision, click here. To read about last month’s decision, click here.

Jeremy Harper is the director of Australian expat mortgage broker.