The Interest Rate Cut
On the 3rd of November, the Reserve Bank of Australia announced its decision to cut the interest rate to a historical low of 0.1%. Although the decision did not come as a surprise, the rate cut still brought a wave of excitement among the economy as the record low interest rate will have far-flung impacts on the Australian economy.
Why is the rate cut so important?
The RBA has always been cautious about expansionary monetary policy due to the far-flung ramifications of an interest rate cut. However, given the dire economic conditions over the past few months, a rate cut would be necessary to save the Australian economy.
The Australian government has invested in unemployment benefits and rolled out several new subsidy schemes. However, despite the large dollar amounts of these initiatives, they do little in enhancing consumer confidence, which is the actual core of the problem. Lower interest rates would be the solution.
Another piece of good news for the Australian economy is the RBA’s decision to expand its bond-buying program to purchase $100 billion of government bonds over the next six months. The purchase of government bonds signals the implementation of quantitative easing policy, which means a direct injection of money into the economy. In short, the purchase of $100 billion bonds is equivalent to printing $100 billion worth of money for the economy. This sends a strong signal to all Australian consumers that the government is dedicating all means to revive the economy.
Such a progressive scheme of economic stimulation will bring impacts to the financial industry. Low rates are the simplest yet strongest incentive for borrowing and spending. According to the Sydney Morning Herald, the RBA is planning to reduce its lending rates to commercial banks. This includes the $200 billion lending credit given to commercial lenders to stimulate lending. In such a low interest rate environment, the value of your savings is going to decrease overtime. This is further enforced by the fact that savings may not define your wealth anymore. Spending is wisdom.
Economic performance follows a cyclical behaviour of boom and bust. After being hit hard by the pandemic, it is time for the Australian economy to step into the next business cycle. Do not miss out on the opportunities that arise from these critical times of the economy. In fact, there are already signs of revival as we can see from the increases in the number of home loans taken out. From September till now, residential loans have grown by 5.9%, Personal fixed loans increased 8.5% and commercial building loans by 57.2%.
Smart investors are showing courage to invest and seizing the new opportunities to make gains.
As one of Australia's fastest growing real estate and finance solutions companies, KBRZ has professional background in property sales, loans as well as investment funds. KBRZ has years of experience in mortgage services, allowing the company to establish mature financing channels and customer networks, as well as accreditations with multiple reliable Australian financial institutions.
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