August 2013 Interest Rate Drop


Good news for mortgage holders this month, with the RBA dropping interest rates to record lows. Dropping a quarter of a percent to 2.5%, and this time the banks have followed, which means those paying off their home will see instant savings. For the average mortgage holder paying off a $300,000 home loan, this means around $50 a month cut from their repayments. So what was the reason behind this months interest rate cut? And will there be more to come?

RBA's Reasons For Dropping The Interest Rate

Glenn Stevens, governor of the Reserve Bank Of Australia has cited several main reasons why the RBA board decided to drop the cash rate.

International Reasons

  • Global growth is still slow
  • Worldwide commodity prices continue to decline

Australia Specific Reasons

  • Levels of mining investment are declining
  • Unemployment is rising
  • Labour costs are increasing
  • The Australian dollar is still high
  • Recent interest rate cuts and holds have worked to increase spending somewhat, but it is still subdued

All these reasons lead to the conclusion that the economy needs to be pushed a little harder, interest rates need to be dropped to encourage borrowing to spend. The savings on home repayments should also encourage consumers to spend that extra cash that they now have available.

What This Means For You?

The interest rate is at a low point and hasn't been this low for over 50 years in Australia, you would be pushing your luck if you were to continue to wait for further drops before you decide to go for a home loan. Industry experts have suggested that there is not much more room to decrease interest rates any further without causing some problems.

Overall if you have been thinking of getting a home loan, or tossing up whether to continue to rent or purchase a house, have a look at interest rates available on home loans at the moment at our home loan comparison page.

What Does The Future Hold?

The government will now have to focus on other industries, it can no longer fall back on mining dollars. Investment in the manufacturing industry and service industries, especially Hi-Tech industries should be the main focus. Retail should also be a priority, as consumer spending is slowing.

Property markets and business startup industries should see an increase in investment, as mining companies are not looking as attractive to investors as they once were. This combined with low interest rates and thus more budding entreprenuers starting up their own businesses could equal a huge boom in new small businesses in Australia.

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