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News.com.au
22-05-2025
- Business
- News.com.au
Key detail in latest interest rate cut as RBA keeps a close eye on the US
Interest rates have fallen once again and, while this is welcome news to many struggling homeowners, experts have issued warnings about some of the ramifications Aussies could see off the back of this decision. On Tuesday, the Reserve Bank of Australia cut the cash rate by 25 basis points, to 3.85 per cent. This is the second time the cash rate has been cut in 2025, with the move welcomed by mortgage holders, who, prior to this endured a period of prolonged, brutal rises, followed by more than a year of rates being held. But, while the focus has primarily been on mortgage holders, industry professionals say it is also having an impact on many Aussie bank accounts. Leading Australian fund manager, Betashares, has warned that people with savings in the bank should brace to see their income fall along with any future rate drops, as the banks cut interest rates on term deposits. The company noted many banks have already reduced their interest rates on term deposits by about 0.60 per cent, with further falls of about 0.50 per cent expected in this space, according to Betashares analysis. 'As a result of these cuts, future income that savers could expect to earn from Australia's $1 trillion pot of term deposits has dropped by $6 billion and could potentially continue to fall another $5 billion,' the company said. Betashares CEO, Alex Vynokur, said there were multiple options out there for Aussies looking to make returns on their savings. 'In the coming months, the returns from bank deposits are expected to fall in line with continued interest rate cuts from the Reserve Bank,' he told 'In this climate, cash and fixed income ETFs will be topical for investors seeking to make up for declining returns from cash sitting in the bank.' Why Aussies didn't see a bigger rate cut In her press conference, Governor Michele Bullock indicated the RBA was considering handing down an even bigger cut of 0.5 per cent but, ultimately, they decided against it. This was in the wake of US President Donald Trump's April 2 tariff announcement, the scale and scope and which Ms Bullock admitted left the Board and the central bank's economic team 'completely blown out of the water'. 'There was an argument and we did debate it (a 50 basis point cut) but it wasn't the strongest argument in the room,' she said. However, Betashares Chief Economist, David Bassanese, claims that, while a 0.5 per cent cut may have been on the table a few weeks ago, it was likely not given very high consideration during this most recent meeting. This is due to Mr Trump momentarily rolling back some of his harsher tariff announcements in order to allow trade deals to be negotiated. 'Fears of a US recession have eased and, with that, the sense of emergency that might have led the RBA to cut by 0.5 per cent,' he said Mr Bassanese said Tuesday's cut was not a knee-jerk reaction to outside influences like US tariffs, instead it 'reflects the simple fact that underlying inflation is falling back to the RBA's 2-3 per cent target band. The latest Q1 Consumer Price Index report showed inflation fell to 2.9 per cent in the March quarter, down from 3.2 per cent in December quarter. Inflation falling back to more neutral territory is exactly what the RBA had hoped to achieve with its 'narrow path' strategy, that saw interest rates rise sharply and slowly ease as inflation came back down. Ms Bullock said she now felt comfortable retiring the narrow path analogy 'for now'. 'I don't want to sort of suggest that I am 100 per cent confident we are there, but it is really encouraging we have got inflation down and we still have employment holding up,' she said. 'But this is not a situation that is the equilibrium. We're always going to be thrown off course by things, as we have seen.' More cuts expected as RBA eyes Trump Like the RBA, Mr Bassanese expects that the annual underlying inflation will ease further in the coming months to sit around the midpoint of the 2-3 per cent target band. If this happens, he said it should allow the RBA to cut the cash rate even more, with the economist suggesting a 'neutral level' would be around three per cent. This would allow for three further rate cuts up until early 2026, from 3.85 per cent to 3.1 per cent. 'Barring an upsurge in global or local economic growth concerns, the RBA may likely cut rates following each of the next few CPI reports,' Mr Bassanese said in his analysis. 'This is providing these confirm a further easing of inflation in line with the RBA forecasts.' And, while the chaos around Mr Trump's tariff orders is expected to continue to ease, if it doesn't, then it could lead to more significant cuts by the RBA. If the tariff drama ramps back up and the US can't reach deals with its major trading partners, there is a risk the US could fall into recession. If this does happen, Mr Bassanese said the RBA could 'easily' cut rates as far as 2 per cent or even lower. In her press conference, Ms Bullock made it clear that, while the situation in the US had eased for now, the RBA would be keeping a close eye on any new developments and is prepared to respond as needed. 'We are in a good position but there are things coming down the pipeline and we don't know what they are and how they are going to impact us,' she said.
The Guardian
19-05-2025
- Business
- The Guardian
Reserve Bank tipped to cut cash rate amid growing confidence Australia's inflation is being tamed
The Reserve Bank is expected to cut the cash rate on Tuesday, easing pressure on indebted households grappling with high living costs and elevated mortgage repayments. Market pricing implies a 95% chance the level will fall by a quarter point to 3.85%, amid growing confidence that inflation is being tamed. There were, however, competing views from economists that suggested the RBA could offer a surprise bumper half percentage point cut, or no cut at all, making the decision one of the most anticipated in recent times. The chief economist at Betashares, David Bassanese, said he believed inflation had eased enough to trigger a rate reduction. 'The reason they are cutting rates is not due to weakness in the economy; they're cutting rates because of well-behaved inflation,' Bassanese said. Sign up for Guardian Australia's breaking news email 'It's taking the foot off the brake rather than putting the foot on the accelerator.' A reduction from the cash rate's current elevated level of 4.1% would be viewed as a shift back towards neutral, rather than an attempt by the RBA to stimulate the economy, which currently has a soaring stock market and strong jobs market. While there is no formal definition of what the RBA deems a neutral rate, it is broadly interpreted at around the 3.35% to 3.6% level. A reduction on Tuesday, which would be the second rate cut this year, would swiftly flow through to lending rates, saving mortgaged households $114 a week for a $750,000 loan, according to Canstar. A cut would be likely to drive homebuyer activity, lifting property prices, although affordability constraints are expected to prevent the market from booming again in the near future. Pradeep Philip, partner at Deloitte Access Economics, said a rate cut would help businesses after Donald Trump's tariff regime dissuaded many companies in Australia from investing in new equipment and technology. 'It'll be a big signal around business investment, and it effectively would be a bit of insurance being taken out against global instability,' Philip said. The initial shock of Trump's 'liberation day' tariffs convinced some forecasters to tip a bumper half percentage point cut in May amid fears the global economy would fall into recession, and create a need to stimulate economic activity in Australia. That view lost favour in recent weeks due to moves by Trump to wind the tariffs back and mend economic relations with China. Global share markets, including in Australia, had also recovered, fuelling investor confidence and lessening the need for a local stimulus. Sign up to Breaking News Australia Get the most important news as it breaks after newsletter promotion A strong jobs market and rising wages in Australia also caused some economists to pare their rate cut expectations. ANZ expected a quarter point cut on Tuesday was 'more likely than not', while noting there was a chance of the RBA surprising the market by holding rates steady. In the hold scenario, everything from equity prices to the value of the Australian dollar would need to adjust, which would lead to volatile market movements after the announcement on Tuesday afternoon. The RBA has consistently pushed back against predictions it would deliver a string of rate cuts as it tries to wind inflation back further. The chief economist at the Centre for Independent Studies, Peter Tulip, said the current rate settings were keeping a lid on inflation. 'The RBA argued [in February] a sizeable reduction in rates, as the market then and now is expecting, would lead to inflation above the target,' Tulip said, in comments published by the Australian National University. 'Incoming data releases do not indicate any reason to revise that conclusion.'
The Guardian
07-04-2025
- Business
- The Guardian
What should I do – if anything – about my superannuation during current market volatility?
Global share markets, including Australia, have fallen heavily in response to Donald Trump's tariff regime, causing alarm among investors and eroding value from retirement account balances. Superannuation portfolios typically contain a sizeable allocation to international and domestic shares. So when conditions turn bad for global markets, like now, superannuation balances almost certainly drop. Australia's benchmark S&P/ASX 200 is down about 14% from February highs after a major sell-off on Monday as fears of a full-blown trade war and global recession risk escalated. Here's what you can do. Super is a long-term investment. The share market dive will weigh on short-term super fund returns, but it follows two years of very strong returns, the AMP chief economist, Shane Oliver, says. 'As most of us have at least some of our wealth in shares via our superannuation, such falls can be depressing, but seen in the context of share market history which often sees periodic sharp falls they are nothing new,' he says. Sign up for the Afternoon Update: Election 2025 email newsletter While the fall in US shares has been rapid – the fourth-fastest two-day fall since the second world war – the total drop is mild when compared to the last 120 years, he says. Oliver says the key for most investors is to stick to a long-term strategy. It's unclear when the current volatility, triggered by deteriorating global trade relations, may calm down. Fund managers are looking for signs of a truce in the tariff tit-for-tat, especially between the US and China, to signal a recovery may be on the cards. Fund manager Betashares said in an investment note on Monday that it was a challenging time for investors because it was difficult to forecast the outlook with 'any level of conviction' given the uncertainty of the tariff unrest. 'We are looking out for any further announcements of escalation or olive branches,' the note said. Betashares said it was 'as important as ever' to have a disciplined approach to investment 'which should include the benefits of diversification'. Falls in the value of superannuation balances are usually of most concern to workers nearing retirement, given they have less time in the market for their accounts to recover. Angus Kidman, a money spokesperson at the financial comparison website Finder, says people in their 50s and 60s may want to reassess their investment strategies and consider taking less risk. 'Anybody who's in their 60s, really, they should be very actively involved in what their super strategy is and what their exit is going to be,' he says. 'People in their 50s should be focusing on it more. That's often when you might think about switching into more of a balanced strategy, where you've had a growth strategy previously.' Investors typically limit risk in their portfolios by allocating more of their money to cash and fixed income, while reducing exposure to more volatile asset classes like equities. Gold is also seen as a defensive asset class and historical haven during volatile times, although traders did send the price of the precious metal lower on Monday, potentially in a push to raise cash reserves to protect against a wave of margin calls. Given younger workers won't have to tap into their retirement savings any time soon, there is generally less urgency in reacting to short-term market movements. Historically, similar-sized share market plunges, such as the Covid sell-off of 2020 and global financial criss sell-offs in 2008, have turned out to be buying opportunities. Kidman says market volatility is a reality that younger workers will experience in 'several decades throughout their lives'. 'Now is not the time to be panicking,' he says. 'The important thing is to make sure that you're continuing to use super as a tax-advantaged investment, because it does have a benefit there that almost nothing else has. 'For those younger cohorts, it's very much more a case of, look, this is part of the ebb and flow of what goes on. But having a consistent strategy while thinking about other things is still going to be the best way to go for most people.' Kidman says people should be especially alert for scams. 'When there's volatility, this is when people tend to fall for scams and other things like that,' he says. 'There's definitely an increased risk of that … because hackers will trade on that kind of vulnerability.' He also points to last week's cyber-attacks on several Australian superannuation funds, which the Association of Superannuation Funds of Australia (ASFA) said resulted in a small number of customers losing a combined half a million dollars. Kidman says an event like this can be 'followed by people going into a frenzy of fake text messages and scammers trying to say, 'Hey, we'll check that out''. 'That's something people need to be aware of,' he says. 'It's when we're nervous that we're more likely to react to those things. So I urge people to really be cautious about that stuff [and] don't react to text messages or random phone calls that claim they're from your super fund, or someone who can fix up your investments, because almost every … time, it's going to be a scam.'
The Guardian
28-01-2025
- Business
- The Guardian
Inflation figures to ‘make or break' the case for an Australian pre-election February rate cut
Inflation figures due out on Wednesday could 'make or break' the case for a pre-election rate cut next month, according to economists, in one of the most politically consequential set of numbers of recent times. The market is pricing in an 84% chance of a 25 basis-point rate cut when the Reserve Bank of Australia (RBA) meets mid-next month, although those odds will rise or fall based on the December quarterly consumer price index. While the RBA has forecast for the trimmed mean (an underlying inflation rate that strips out volatile price swings) to come in at 3.4%, recent monthly data suggests the quarterly figures could come in lower. The chief economist at Betashares, David Bassanese, said a 3.2% result would 'cement' the case for a rate cut, 3.3% would make it a 'line-ball' decision and 3.4% would probably mean no rate cut in February. 'It will make or break the decision,' said Bassanese, who has forecast a rate cut-cementing 3.2% reading on Wednesday. 'A rate cut would help lift the squeeze on households and mortgage holders would obviously directly benefit. 'A cut could also psychologically lift some of the caution around households and just be seen as a vote of confidence in the economy.' Sign up for Guardian Australia's breaking news email The official cash rate has sat at an elevated 4.35% since November 2023, while the last rate cut occurred in November 2020 as part of a policy to stimulate a pandemic-stricken economy. The treasurer, Jim Chalmers, said on Tuesday he was confident 2025 would be better economically for Australians after grappling with rising cost-of-living pressures last year. 'We are making progress on inflation. We have got those real wages growing, we have kept the jobs market in really quite extraordinary conditions, so all of those things will flow through into some of the other indicators,' he told ABC radio on Tuesday. 'We expect growth in our economy to pick up a little bit, not a lot, but a little bit, and that will be a good thing.' Sign up to Breaking News Australia Get the most important news as it breaks after newsletter promotion Polling is tight before Australia's election, due by May, with unofficial campaigning under way. While most incumbent governments that faced voters last year lost power, those that won unveiled aggressive policies designed to alleviate cost-of-living pressures. The market expects the RBA to start cutting the cash rate before the trimmed mean drops into its target 2% to 3% band, provided the central bank is confident of a decelerating trend. The ASX tracks market expectations of a change in interest rates through the pricing of cash rate contracts. The rate tracker lists a 16% chance of 'no change' in February, a view supported by robust employment data that recently created uncertainty over whether the labour market required stimulus. The headline inflation rate, which includes government rebated-electricity bills, last registered at an annual 2.8% rate at the September quarter release. With AAP
