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RBA keeps rates on hold but increases cheap bank funding

September 7, 2020

As widely anticipated, the Reserve Bank left the cash rate on hold at its September meeting. This decision is the sixth month in a row that the official rate has been held steady at 0.25%. 

However, in response to the economic impact of a second round of lockdowns in Victoria, the RBA extended its Term Funding Facility which provides low-cost funding to banks at the rate of just 0.25% until June 2021 and increased the total amount of funding available to around $200 billion.

Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital, said, “By keeping bank funding costs ultra-low this will help support the flow of funding at low rates to households and businesses.”

Craig Betalli, Senior Broker at Our Broker, agrees continued low-interest rates will encourage home buyers to take advantage of the low financing costs and stimulate property activity which is excellent news coming into spring. 

“Buyers should see more property available. Moreover, an improvement in the supply of properties for sale will likely result in a more consistent property market leading up to Christmas,” Craig added. 

On future rate movements, Craig does not anticipate cuts anytime soon. “I expect people will settle into a ‘living with COVID’ norm and the economy will recover but perhaps not to pre-COVID levels given the impacts on industries such as travel tourism and hospitality, while the second round of lockdowns in Victoria will slow the recovery.”

Current residential interest rates are being moderated by the bank’s cost of funds, their margins and regulatory restrictions, Craig noted. “So, rates seem to have plateaued, but as we advance, a higher Australian dollar may impact interest rates.” The dollar is on the rise as it appears overseas investors are deciding that the Australia economy is performing better than other western economies such as the United States. 

On the commercial lending front, Craig says some SMEs are thriving. “For these businesses, the increase in low-cost commercial funding is helpful. However, given the prevailing economic situation, some hibernating businesses may not be able to take advantage of the low rate environment just yet.” 

To find out more about a residential and commercial loans including equipment and asset finance, contact Our Broker on 1800 913 677.