The future of cash rates and what it means for you

Whether you’re in the market for a personal, home or car loan, interest rates matter.

On October 6, the Reserve Bank of Australia (RBA) decided that the cash rate would remain at its historical low of 2 per cent. This makes it the fifth month in a row that the RBA has opted to keep the rate unchanged, and says a lot for the state of the economy now and where it’s heading.

The monthly statement from Glenn Stevens remains largely unchanged, citing the same reasons as it did previously for its decision:

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet, with domestic inflationary pressures contained.”

As the economy hasn’t been growing as rapidly as targeted, the Reserve Bank aims to boost expansion by encouraging consumption. As interest rates drop, so does the incentive to save. Businesses will enjoy more commerce as they reap on people’s motivation to spend.

So has this goal been successful, and what does it mean for you?

Mission accomplished?

Commonwealth Securities (CommSec) reports that for the most part, a positive change in the economy has been seen. Employment and job listings are on the rise, while manufacturing and service sectors have been seeing growth.

If these low interest rates pushed you to take out that car loan, you’re definitely not alone. CommSec also notes that since the initial cash rate cut in May, car sales have reached record highs.

Don’t worry – if you’re on the house hunt, this benefits you too. You can expect to enjoy interest rates on home loans that have never been more affordable. Furthermore, Shane Garrett from the Housing Industry Association comments that “low interest rates have been important in supporting healthy levels of residential construction activity”.

This means that in capital cities with tight housing supply like Sydney, much-needed new buildings are expected to pour into the market in due time. More housing means more choices – always a plus for buyers.

Where’s the cash rate heading?

Many are predicting the cash rate to remain unchanged over the next year. “I think we are pretty content where we are right now,” said Govenor Stevens. With economic growth rising thanks to the low cash rate, there’s very little reason to expect a cut and almost none to predict a rise.

If you are considering to purchase, make sure you are in right position by talking to the lending professionals at Police Bank. As we are a member-owned bank, we work for you with low fees, competitive rates and superior service.