There is much talk about what the Reserve Bank of Australia (RBA) will do at its next monthly board meeting. Although the Board has a full agenda, the one item most economists and mortgage-holders eagerly anticipate is the cash rate decision. Up, down or no movement?

The official cash rate is now 2.0% after the RBA reduced it even further in May in the hope of stimulating growth. Will this push more people into property investment or encourage more to fix the mortgage at a lower rate not knowing what the future will bring?

Before you start phoning up real estate agents or making changes to your current mortgage, it’s good to understand what has driven the interest rate consistently down since 2011 so you can make an informed decision.

What is affecting our interest rates?

Australia emerged from the Global Financial Crisis (GFC) a relatively strong economy, especially compared to the US, UK and much of Europe. To ensure our inflation didn’t get out of control, the RBA steadily increased interest rates until November 2010, holding them at 4.75% until November 2011.

However, the global economy continued to grow only moderately throughout 2012 and this, along with declining inflation in Australia, gave the RBA’s Board good reason to recommence reducing rates in early 2013.

A couple of months later, with very little change in growth across the major western economies combined with continued lower key commodity prices in Australia, the Board reduced the cash rate to a new low of 2.75% hoping it would stimulate sustainable growth.

By August 2013, little had changed forcing the RBA Board to apply yet another reduction, this time to a remarkably low 2.5%.
Although that move stirred the sleeping giant and attention to property started to return; it wasn’t fast enough. With inflation falling below 3%, the RBA further decreased rates to just 2.25% in February 2015, and, to the surprise of many, again three months later to a paltry 2.0%.

Is it time?

With the cash rate at such a low level, it might be a good time to shop around for a better deal. Exit fees were abolished in July 2011, so the power is in your hands. The only constants in life are taxes and change, so a long-term mortgage will never remain static.

The information provided in this document, including any tax information, is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.