RBA holds steady, banks moving independently on interest rates
Official interest rates remain on hold at record lows, but banks are starting to move independently of the Reserve Bank of Australia by slashing savings account rates as a turning point for housing finance looms at the end of the month.
RBA governor Philip Lowe had no surprises in keeping the official cash rate at 0.25 per cent, saying that the COVID-19 induced downturn had not been as severe as expected, and that Australia’s economic recovery did not warrant a further easing of monetary policy.
Dr Lowe, however, said fiscal support had played an important role in ensuring Australia’s economy did not collapse due to the pandemic, with monetary support likely to be required for some time.
“The board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery,” Dr Lowe said.
The RBA holding steady has not held banks back from shifting interest rates, with competition ramping up, particularly among fixed rate loans.
Analysis by Canstar showed 28 lenders had cut 116 fixed rate loans since July, with interest only rates also coming down over the last couple of months.
A total of 16 lenders increased fixed rates across 153 loans products in July and August.
Variable loan rates were cut by an average of 0.2 per cent in August, Canstar said, while the average increase among lenders that raised variable rates during the month was 0.22 per cent.
Meanwhile, more than 40 banks slashed savings rates in August, according to RateCity.
“Complacent savers are earning next to nothing in this low rate environment,” RateCity research director Sally Tindall said.
“Seventy-six per cent of all household deposits are held by the big four banks, yet they’re the ones offering some of the lowest ongoing savings rates on the market.
“Customers earning 0.05 per cent on their hard-earned cash should pick their savings off the floor and move to a higher rate.”
At the same time, deposits have hit an all time high, with data from the Australian Prudential Regulation Authority showing total bank deposits had increased by $64.4 billion since March, and were up by $100.4 billion as compared to the same time last year.
“Deposits are at an all-time high, which makes it even harder for banks to offer decent savings rates,” Ms Tindall said.
“They don’t need to attract new savers – they can’t even afford to offer respectable returns to the customers they’ve got.”
Analysts are also warning that September will be a pivotal month for homeowners and investors alike, with decisions looming about how best to safeguard finances as the JobKeeper and JobSeeker programs start to taper off.
Canstar finance expert Steve Mickenbecker said property owners could decide to panic sell as many borrowers come to the end of their mortgage repayment pauses and the government stimulus is reduced.
“September is the turning point for many homeowners and investors hoping to see the year out in better shape and avoid selling their property under duress,” Mr Mickenbecker said.
“Now is the time to safeguard yourself by picking up new money saving habits and making a decision to renegotiate your loan or refinance to a lower cost option.”