Hi, I'm Graham, the insights manager at finder.com.au
The RBI cut the cash rate again today for the third time this year we're currently at
0.75%. That's half we were at the beginning of the year. What's in store in the future.
Are more cuts to come? What's this mean for homeowners? Are savers in trouble? We're going
to rundown all of this with our seven predictions following the October right cut 2019. So number
one is that we are going to see more cuts to come. Three we've already had but when
we asked economists how low they think the cash rates going to go, before it starts to
increase, the biggest group 70% of them said, 0.5%, which means one more cut in the pipeline.
When's that going to happen? February is the most popular month in terms of forecasting
yet so watch this space.
Number two on our list is that sentiment will
continue to decline. We've asked economist for a year and a half now for their positive
or negative economic outlook when it comes to five different economic factors and we're
seeing the lowest results ever right now for unemployment, and wage growth. That follows
some figures that have come out recently showing an uptick in on employment in Australia. And
that's despite more jobs being on the market. The reason is, most of the new jobs are part
time side hustle as well. So there isn't enough jobs out there, there's not enough jobs, that
means that wage growth is also going to be stalled. So looking a little bit bleak for
those two factors in the near future. Number three is that the housing market recovery
is a long way off. We've seen prices continue to increase slightly in Sydney and Melbourne.
Those stock volumes are low, meaning prices are being artificially increased because there's
less stock on the market but we asked economist how long it will take in other Australian
capitals for prices to start to increase. And they said between five and nine months,
you can see the exact figures on the screen there. But one thing's for sure. The full
housing market recovery is still a fair way off. Number four is that quantitative easing
may be on the cards know what is QE? Well, quantitative easing is what happens when a
central bank basically runs out of options and isn't getting an impact from the lowering
the cash rate. What happens is that central bank will create new money they used to physically
print it but now it's just created on a computer system. They use that new cash to buy low
risk investments like government bonds, reducing the interest rate on those products and making
them less appealing to investors. And that encourages investors to invest in higher risk
investments like the stock market, which helps boost company's, which helps boost employment,
which helps boost the economy. And once the economy recovers, those bonds are then sold
by the Central Bank and the profits are deleted. So the net amount of money in the economy
remains the same in theory. So why do we think QE is more likely? Basically that's what our
economists are telling us. We've seen one third of economists this one saying it was
likely up from 20% earlier in the year. Also, there's been some communication from the RBA
that this might be on the cards in the near future. Number five is that we may actually
see stock market boost despite the doom and gloom. That's because once the quantitative
easing, if it kicks in, once that money is created, it tends to be invested in the stock
market. We saw an increase in the stock market in the US and the EU, post GFC after they
introduced QE so that may well happen here. The last two items on our list are kind of
obvious. If you see a cash rate cut, we need to talk about mortgage holders. And we need
to talk about savings because the cash rate directly impacts those two types of products.
So number six is that homeowners are going to see some savings in their repayments, the
average homeowner in Australia will save about $19,000, that's for kind of $380,000 loan.
Obviously, if you're buying a new house to save an awful lot more, and that will double
if we see another cut in February, that's following savings we've seen earlier in the
year. Of course, the central bank are going to be hoping that households don't save that
money and instead play with back into the economy because savings accounts are becoming
far less good value. So seven our last point on the list is kind of connected to the last
one is that savings accounts in Australia are going to continue to decrease in value
and become more useless. In fact, the savings account rate the online savings again right
right now is about half what the cash rate is following a decrease in that right the
banks have pushed it into the ground in 2017. The reason they've done that is because they're
trying to encourage customers to move across to bonus savings accounts instead, where you
put money in. But it's locked in, you generally can take that same amount of money out every
month without losing your interest rate. So two products there that are not ideal, the
maximum interest right there 1.75%. But there are products on the market which offer better
value than these. If you look for the smaller banks, like ING Bank and ME bank, and some
of the Neo banks like 86 400 and Up bank - these guys are offering online savings accounts
with no fees with interest rates from 2.2 to 2.5%. As long as you put your money into
your day to day banking with the bank, generally there's no restrictions on these accounts.
How much difference does that make to your saving? Well, the average Australian, according
to our calculations on the basic online savings account will make about $500 and interest
in three years on these accounts up to $3,000 in interest. So if you want to make the most
out of the small interest rate, you can get your savings these other products so look
at. We have more information and a full write up on all of these products in the links below.
So there's our seven updates following the RBA decision in October 2019. Things don't
look great on balance, but what's actually going to happen will we see another cut in
February? Follow all the updates for the economy on finder.com.au