Australian mortgage interest rates were cut by an average quarter of a percent (0.25%) in February, after the central bank (the Reserve Bank) cut rates by the same amount for the first time in 18 months.
The change surprised some economists and commentators, who expected the Reserve bank to leave rates unchanged, at least temporarily, while the Australian economy maintains a reasonably healthy level of economic growth.
Commonwealth Bank announced a reduction to their variable or floating rate by 0.25% immediately, and Westpac cut its standard rate by 0.28%, followed by ANZ and NAB, also matching the CBA cut of 0.25%.
All major banks quote home loan rates usually as a percentage discount “from their standard variable rate”. However each bank has different standard rates, so a 0.5% discount from one bank is not the same as a 0.5% discount on offer from another bank. Therefore you need to be aware of each bank’s standard rate and their current discounts as well, and be aware that both standard rates and dicounts will change.
After the change, the Commonwealth’s standard rate for example is 5.65%, while ANZ and NAB’s standard rate is 5.63%. Meanwhile Westpac’s starting variable rate is now 5.7%, still the highest standard rate of the Big 4. However one needs to look at discounts based on your estimated loan size and borrowing ratio.
The Reserve bank has been concerned about Australia’s foreign exchange rate being too high to assist the Australian economy to keep growing, and hence some rate changes can be linked to an Australian dollar strategy.
The Reserve Bank has noted they have concerns about lower overall economic growth in 2015 and there is an expectation that Australian unemployment numbers are likely to rise before they fall. It’s useful to know that when there are any concerns about the economic situation, if the inflation rate is low and/or under control, the bank will feel empowered to reduce rates in an effort to support the economy.
Inflation rates are low and have been unusually low for an extended period, relative to the history of inflation rates in Australia.
In addition such a rate cut reduces the attractiveness of the Australian dollar to investors, and can help ensure the Australian dollar is not held at such a high level as to hamper exporters and subdue economic growth.