Rate reductions benefit some, but many Australians see no relief
While the Reserve Bank’s past interest rate cuts have been welcomed by many, a significant proportion of Australians say their financial situation has deteriorated as a result.
According to research from comparison site Finder, nearly one in five Australians – around 4.1 million people – report that the last three rate reductions have left them worse off, highlighting the uneven effects of monetary policy across the country.
While most (79%) of the 32 economists and analysts surveyed by Finder supported last month’s rate cut, opinions remain split, with 11% calling for a larger reduction and another 11% arguing the Reserve Bank should have held or raised the rate instead.
Graham Cooke (pictured right), head of consumer research at Finder, pointed out that the central bank faces a difficult task balancing inflation and economic growth. “Monthly inflation just hit the top of the RBA’s 2-3% range, so the forthcoming quarterly figures will determine if borrowers see some more relief before Christmas,” he said.
“The chance of a cut (today) is miniscule, but borrowers can still find ways to save. Look at what competing banks are offering and leverage this in your negotiation with your lender. If they don’t budge, it might be time to switch.”
Peter Boehm, from Pathfinder Consulting, questioned the timing of the August rate cut. “With inflation ticking up it would seem the RBA’s last rate cut was premature,” he said. “It seems highly unlikely to me that the RBA would risk a further rate cut when the direction of inflation is upwards, fuelled by high levels of government spending and expensive power due to significantly high domestic and commercial power prices.”
While 20% of Australians – about 4.3 million people – say they have benefited from lower repayments and increased borrowing capacity, the majority have seen little or no change. Sixty-one percent reported no significant impact from the rate cuts.
Savers, particularly those on fixed incomes or saving for a deposit, have seen their returns diminish as interest rates fall. Noel Whittaker, from QUT, cautioned that inflation remains a concern and that government measures to ease first-home buyer mortgage insurance could further drive up prices. “We don’t need to add increased rates to this heady mix,” he said.
Cooke noted that the effects of rate cuts are not universally positive. “While recent rate cuts have been a welcome relief for many Australian homeowners facing financial pressure and rising costs, not everyone’s cheering,” he said. “Those with savings – especially those on fixed income or those saving for a deposit – have seen returns take a hit, with smaller interest payouts each month.”
He added that while borrowers may hope for further reductions, savers are faced with reduced returns. “Savers are left with a difficult choice of whether they choose to accept lower returns or risk their money on more volatile investments,” Cooke said. “Now is a great time to shop around for a better bank. Some savings accounts are still offering rates as high as 5%, and several major banks are currently giving cashback to new customers.”
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