Australia's official cash rate has plunged to 0.10 per cent, marking the lowest interest rates in the nation's history.
Economists of the Reserve Bank of Australia (RBA) today decided to slash rates in a bid to stimulate the country's economy out of a COVID-19-driven recession.
It's the third time interest rates have been cut this year. In January 2020, mortgage holders were paying 0.75 per cent interest on their repayments.
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In his monetary statement, RBA Governor Philip Lowe said the reasoning behind the cut was to provide credit to more Australians.
"At its meeting today, the Board decided on a package of further measures to support job creation and the recovery of the Australian economy from the pandemic," Mr Lowe said.
"With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs.
"Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago."
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Graham Cooke, Insights Manager at Finder, said it's the first time since 2011 that the central bank has cut rates on Melbourne Cup day.
"For the first time since 2011, the RBA has declared a Cup Day cut despite some skepticism from experts around the effectiveness of further monetary stimulus measures," Mr Cooke said.
"But significant considerations like the strength of the Australian dollar and a lagging Victorian economy have supported the case for further easing.
"I suspect the horse races weren't the only thing punters were betting on today."
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WHAT RECORD-LOW INTEREST RATES MEAN FOR THE AVERAGE AUSSIE
Australia's interest rate – also known as the country's "cash rate" – is the amount of money every bank has to pay on the money it borrows.
Typically when the RBA lowers interest rates, Australia's major lenders follow.
The lower the interest rate on a loan you have with a financial institution, the less money you have to pay back.
A full back-to-basics explainer of interest rates can be found here.
So what does today's cut mean for you?
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For many mortgage holders, the difference could be just a few more dollars in your pocket every month. If your bank passes the full rate cut on – and that is an "if" – the average mortgage holder could have an extra $33 a month.
"With existing home and business borrowers unlikely to see much of the cut and the former unlikely to spend it even if they do, the stimulus of a rate cut to the economy will be very modest," Canstar Group Executive of Financial Services Steve Mickenbecker said.
"Borrowing rates are so low already that a cut is largely irrelevant.
"Even if passed on fully, a cut of 0.15 per cent to the average $400,000 over 30 years will lower the monthly repayment by $33, not enough to make much of a difference to borrowers' spending and house purchase intentions."
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The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
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