PROPERTY

The rate that stopped the nation: cash rate hits 0.10% for the first time

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The Reserve Bank of Australia (RBA) has announced another rate cut, bringing the cash rate down to 0.10% for the first time in history.

Not only that, but RBA governor Philip Lowe announced a ramp up of quantitative easing measures, bringing in a new era of monetary policy in Australia.

The RBA decided to reduce the cash rate to 0.1%, reduce the target for the yield on the three-year Australian Government bond to around 0.1% and reduce the interest rate on new drawings under the Term Funding Facility to 0.1%.

rba cash rate august

Additionally, it reduced the interest rate on Exchange Settlement balances to zero and purchase of $100 billion of government bonds of maturities of around 5-10 years over the next six months.

Despite many economists predicting the move, Insights manager at Finder Graham Cooke says the rate cut was far from a certainty.

"For the first time since 2011, the RBA has declared a Cup Day cut despite some scepticism from experts around the effectiveness of further monetary stimulus measures," he says.

"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."

Plato Investment Management managing director Don Hamson says the cut will extend the pain being felt by retirees and savers around Australia.

"Today's rate cut just extends the pain that's been felt by many thousands of Australian retirees who rely on income from cash savings. Those savers are now virtually paying banks to hold their money, and are clearly going backwards after allowing for inflation," Hamson says.

"With rental incomes also stagnating or declining in many parts of the nation, and bank dividends being sliced, many self-funded retirees have received a significant hit to their income.

"Fortunately, despite widespread concern about dividend income, we are seeing some strength emerge in dividends outside of the banks."

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Eliza Bavin is a senior journalist at Financial Standard covering the wealth management sector, including financial advice, superannuation, life insurance and funds management. She has a Bachelor's degree in communications (journalism) from Charles Sturt University.
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