The nation was watching the Melbourne Cup while those in finance were watching the RBA. The Reserve Bank decided on a package to support Australia’s recovery through the pandemic and specifically support the creation of jobs.
Notable highlights of the package are:
- A cut to the cash rate to 0.10% - previously the historic low of 0.25% in March 2020
- A reduction in the target for the yield on the 3-year Australian Government bond to around 0.10%
- A reduction in the interest rate on new drawings under the Term Funding Facility to 0.10%
- A reduction in the interest rate on Exchange Settlement balances to zero
- The purchase of $100 billion of government bond of maturities of around 5-10 years over the next six months
From March this year, most lenders passed on the full cut to variable rate customers, while only a small amount only passed on part of the cut. Reserve Bank Governor, Philip Lowe, stated that earlier in the year it was seen that transmission occurred differently; banks offered lower interest rates to those customers that called to negotiate rather than cutting rates immediately for customers.
The big banks - CBA, Westpac, NAB and ANZ passed on fixed rate interest cuts last week for those owneroccupied customers looking for greater repayment certainty amongst the pandemic and to provide competitive options.
This is the sixth reduction to the cash rate in the last 18 months; the RBA stated that they are unlikely to make any further adjustments to the cash rate for three years.