The Impact of Interest Rates Cuts
Reserve Bank Australia announced interest rates cuts for two consecutive months (June and July) reached a record low. About 1 percent interest rate cut took place which has made positive effects, specifically on the economy of the country. Unfortunately, experts are also saying that this occurrence has some negative impact as well.
How exactly have the changes have impacted the market and a particular group of people? Here are the ways.
According to ASIC, those who are called “savers” or have a significant amount of money saved in the bank used to be affected positively back when others were struggling to settle some debts. It sounds bad if you think about it, but when Australia was facing a record debt of $2.3 trillion, savers are earning some interests. Unfortunately, that is not the case now. At the moment, about $526 billion is sitting in savings accounts in the country, but because of the interest rates cuts, it is said that they could potentially lose $1.6 billion in interest.
Savers are not the only ones who could potentially be hurt by the changes made. Recent studies show that the number of first-time homebuyers is decreasing because of the struggle to raise enough money for the deposit. But because of the interest rates cuts, it’s going to be even harder. According to experts, borrowing money could be easier because of it and that would mean improvement in the property market which could eventually lead to a property price increase—and not just increase, but increase quickly.
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Other banks are most likely will be affected by the changes as well, and we all know that the banking sector predicts economic recovery. If the bank sector is strong it is a good backbone of the economy. Fixed-rate mortgage holders are not going to like this at all. Most of fixed rates holders probably did not believe that any interest rates could actually fall, and this is exactly why this is not exactly good news for them. It still depends on their fixed rate. According to reports, in the last three years, more people chose fixed rate for their next loans.
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Retirees are also said that will likely be affected by this interest rate cut. Most retirees are dependent on pension and their traditional savings account. But because of this change, the return on investment is going to be even more difficult to expect. Any investments made under the new rules would result in a negative impact on pensioners in a sense that, there are more restrictions in terms of withdrawals and earnings.
Interest rates are a part of the property market. They will either increase or decrease but the fact of the matter is, it’s always going to be there. It’s important to do your research as a buyer or an investor. It will save you from so many problems that could potentially come your way. With the right information, any negative effects would be alleviated.