Latest news with #cashratecut
Yahoo
2 days ago
- Business
- Yahoo
Economist's jumbo $128 RBA interest rate prediction in weeks: 'No need to wait'
A top economist has called on the Reserve Bank of Australia (RBA) to deliver a jumbo cash rate cut in July. Economic growth has been weak, and Australian consumers are continuing to be 'cautious' with their spending, leading to an "agonisingly gradual recovery" in the private sector economy. EQ managing director Warren Hogan has called on the central bank to 'act decisively' at its next meeting and make an 'uncharacteristic' 35 basis point rate cut. This is bigger than the standard 25 basis point cut mortgage holders received in February and May. 'At this stage, the RBA seems to think a neutral cash rate is about 3.5 per cent. There is no reason to wait,' Hogan, who has previously been a cautious voice about rate relief, wrote in an opinion piece for the Australian Financial Review. RELATED Australian dollar rebounds in 'unusual' sign for RBA ahead of interest rates decision Major Coles move to take on Chemist Warehouse, Bunnings, Amazon Centrelink payment change happening next week: 'Will increase' A 35 basis point cut would lower repayments on the average $600,000 home loan with 25 years remaining by $128 per month. That would be a saving of an extra $37 a month, compared to a standard 25 basis point cut. Economist and Yahoo Finance contributor Stephen Koukoulas has also called for a supersized interest rate cut at the RBA's next meeting. He said the RBA needs to "aggressively" move the cash rate to a neutral, or accommodative, position. 'We do need to see the RBA cutting 50 [basis points] at the July meeting, playing a bit of catch up for its errors previously, getting the cash rate down to 3.35 per cent and giving the economy a chance to get a breather, to grow a bit,' he said. A neutral rate is one that is neither stimulatory nor contractionary. There is no set definition for what it is, but it is thought to be in the low 3 per cent region. The Australian economy grew just 0.2 per cent in the March quarter and 1.3 per cent in annual terms. Koukoulas warned that the longer it takes to get the cash rate to a neutral level, the 'worse the economy will be'. 'It needs to get there sooner rather than later, otherwise 2026 is going to be a really tough year for the economy,' he said. Hogan said that despite a boost to real disposable incomes, Australian consumers were 'unwilling to loosen the purse strings in a meaningful way', preferring to save rather than spend their extra income. "The household saving ratio jumped above 5 per cent, back to what was normal prior to the pandemic. It could go higher, particularly as the government seeks to tax superannuation incomes at a higher rate in the future," he said. Businesses are also slowing the pace of capital deployment and experiencing a squeeze on profits from cost growth, but are unable to pass this on to customers. 'Either businesses start passing on costs, and we get higher inflation, or business profits continue to be squeezed, and profits soon contract,' Hogan warned. 'Business will retrench their investment plans; many businesses will fail. This risks an entrenched stagnation, hauntingly similar to Japan's economy of the 21st century.' Financial markets expect the RBA will deliver another three 25 basis point cuts to the cash rate in 2025, taking it to 3.10 per cent by the end of the in retrieving data Sign in to access your portfolio Error in retrieving data
News.com.au
19-05-2025
- Business
- News.com.au
Refinancing at the right time can save big
ANALYSIS This week it is widely anticipated we will see a cash rate cut, which would mean a decrease in interest rates in the weeks following, putting more money in the pockets of homeowners. We saw the first cash rate cut in over four years in February, and following that, Loan Market data shows a 63 per cent increase in refinancing activity. Homeowners have been paying some of the highest interest rates we have seen in a decade and they are ready to move to a better deal. If there is another cut on Tuesday, we expect to see a lot of movement as people look to other lenders. Here is why. Let's look at an example of how much a homeowner could save. If the RBA cuts the cash rate by another 25 basis points, the total reduction since February would be 50 basis points. Say you had a $750,000 home loan on a 30-year term with a fortnightly repayment and your interest rate at the start of the year was 6 per cent p.a. – a 50 basis point cut would move it to 5.50 per cent p.a. That could save over $3500 in interest in the first year alone. But here's the insight: not all lenders will pass on that cut in full. While most passed on the February drop, history shows many banks hesitate when it comes to lowering rates. And when the cuts do come, they can be partial or delayed. Some also offer better interest rates to new customers than existing ones. This means not shopping around can lead to paying a loyalty tax. Let's say you refinance and lock in a full 1 per cent reduction. That simple move from 6.5 per cent p.a. to 5.5 per cent p.a. on a $750,000 mortgage could save over $170,000 over the life of the loan. That's a big enough saving to make homeowners sit up and take notice. If you don't compare your loan regularly, chances are you're paying more than you need to. Knowledge is power, enabling you to negotiate your rate with your current lender, or switch to a better deal if they don't come to the table. Staggering reason Aussies won't get a rate cut The other trend we are seeing is over three in four home loans are prepared by mortgage brokers. This is because there are hundreds of lenders in Australia and thousands of loan products. Brokers can run the comparison on your behalf and let you know if refinancing is right for you and how much you could save if you switch. If you're ready to take control, here are five simple steps that can help you make the most of lower interest rates: Keep your repayments the same Even if your lender reduces your minimum repayments, if you can, stick to the higher amount. You'll pay off your loan faster and save big on interest. Compare and renegotiate your rate Understand what rates are available and talk to your lender. It never hurts to ask for a lower rate, and if they won't offer a competitive deal, it could pay off to switch. Use your offset account wisely Extra savings in an offset account reduce the interest on your loan without locking up your money. They're a quiet achiever in your financial toolkit. Make extra repayments If you receive additional money, such as from a bonus or tax return, consider putting it toward your home loan. This could help you save on interest and pay off the loan sooner. Talk to a mortgage broker A broker can look at a holistic picture of your situation to determine if the structure of your loan is right for you. If you're not using all the features in your loan, the switch to a more basic loan could potentially save you money. David McQueen is the CEO of Loan Market.
