If you are looking for a mortgage broker for a home in Baldivis, you have probably noticed that the record low interest rate has gone down 0.25% to another record low of 1.75%, thanks to the RBA’s decision on 4 May. The RBA said it was necessary to lower the rate further for a variety of reasons. We are going to give you the short version.
The Skinny: Why the RBA Lowered Rates Yet Again
While the global economy is growing, emerging economies are contracting some. China is experiencing some contraction. Our commodity prices are beginning to firm up but they are still lower than in previous years.
In Australia, we are entering a post-mining boom economy. We are growing again but more slowly. Labour has picked up somewhat, as has the Gross Domestic Product (GDP). Inflation continues to be lower than ideal.
Interest rates have been low for a few years and have been necessary to stimulate the economy to its current level. Low interest rates and a lower Australian Dollar are helping, while credit extended to businesses and homebuyers has increased slowly.
What it Means to You
The RBA lowers the interest rate when the economy and inflation are slower than they want. When there is too much growth, resulting in too much inflation, the RBA raises the interest rate. If you asked most economists to project the 2016 economy two years ago, most would have projected it to be better than it is now, with more growth.
In January 1990, the cash interest rate was 17.5%. It would take until September 1991 to go back to single digits at 9.5%. By July 1993 it was down to 4.75%. From then until the Global Financial Crisis (GFC), the rate fluctuated between 4.5% and 7.0%. Other than a year at 4.75% from November 2010 to October 2011, it has steadily has gone down ever since.
We think it isn’t going to be much lower and it has to eventually go back up. If you don’t have a home yet or want to start investing, now is the right time to enter the market.