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What the cash rate means for home loans and businesses

On November 3, the Reserve Bank of Australia (RBA) gathered to fix the monthly cash rate that would influence all monetary movement, including home loan interest rates. The RBA’s board elected to keep the rate at the record low of 2 per cent, which has gone unchanged since the last cut in May this year.

Anyone who has been keeping tabs on the financial landscape will know that this was more or less expected for a variety of reasons. RBA Governor Glenn Stevens expressed these in a statement that accompanied the cash rate announcement. Driving factors revolved around interest rates on home loans, the state of the economy and the government’s plans on growing it.

Increasing the busyness in businesses

For a while now, the Australian economy’s performance has been less than ideal, with GDP growth figures hitting below longer-term averages.

“In such circumstances, monetary policy needs to be accommodative,” says Mr Stevens. Low interest rates will encourage spending and borrowing, which can be a strong stimulant for sparking economic growth. Businesses should find more consumers at their storefront. Meanwhile taking out loans to invest and expand operations will remain affordable.

It seems like the cash rate decision has been making positive ripples too. According to an October 6 release by CommSec, national employment had seen the most rapid six month increase in four and a half years while people also saw a massive lift in job ads and listings.

Loans and housing

People in the market for home loans have also been dramatically affected by the cash rate. Record low interest rates have made borrowing from banks affordable. But there has been repercussive impacts of this, namely prices of homes in cities like Sydney and Melbourne soaring higher.

According to QBE’s Housing Outlook for 2015 to 2018, Sydney’s median house price rose by 22.3 per cent to $1.03 million in the year to June. While this has been a great time for house sellers to make hefty profits, it hasn’t been the most ideal landscape for buyers with a home loan in hand.

To counteract this, the Australian Prudential Regulation Authority (APRA) has been hard at work pressuring banks to ease lending to investors. With less of these types of buyers in the market, demand should ease and lead to a cooling of prices.

So whether you’re after a Police Bank home loan, seeking employment or starting your own business, there are many reasons why the low cash rate should give you a positive outlook for the future.