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RBA keeps interest rates on hold at record-low 0.1 per cent

Published: (Updated: ) in Australian News by .

Australia’s interest rates will remain at the historic low level of just 0.1 per cent for the rest of 2020 after the nation’s central bank decided to hold steady in today’s rates announcement.

Australia's interest rates will remain at the historic low of just 0.1 per cent for the rest of 2020 after the nation's central bank decided not to slash the official cash rate further.

The Reserve Bank of Australia (RBA) cut rates to their rock-bottom levels on Melbourne Cup day last month, saying they'll likely keep the cash rate unchanged for up to three years.

Today, RBA Governor Philip Lowe in his monetary statement said the bank is doing its best to revive the nation from its current COVID-19 recession.

READ MORE: Australia's interest rates plunge to record low

"In Australia, the economic recovery is under way and recent data have generally been better than expected. This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support," Mr Lowe said.

"In the RBA's central scenario, it will not be until the end of 2021 that the level of GDP reaches the level attained at the end of 2019.

"In the central scenario, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022."

For someone with a $400,000 mortgage, the current interest rate of 0.1 per cent represents an approximate saving of $1000 a year – although that is highly dependent on the deal cut with the lender.

Already the low interest rates have spurred a record-level of homebuyers to take the plunge, with NAB predicting a boom in first home buyers.

"In November, demand for NAB home loans was stronger than we've seen for more than two years," NAB's Executive of Home Ownership Andy Kerr told 9news.com.au.

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"Applications over the past six weeks are up more than 25 per cent against the prior six weeks.

"Demand has been supported by record low rates, growing confidence in the economic recovery and strong government support measures."

READ MORE: CBA offers lowest-ever home loan rate

Mr Kerr said NAB expects strong interest to continue given the likelihood of low rates for several years and as more stimulus measures come into effect from state governments.

"We're currently forecasting property price growth of upwards of 5 per cent in each of the next two years, with apartment prices likely to lag house price growth," he said.

"While risks remain due to the ongoing employment impacts of COVID-19 and a likely slowdown in population growth, today's data show house prices already have stabilised and at NAB we're seeing rising interest in regional areas in particular."

READ MORE: Worrying number of Aussies not saving during coronavirus hardships

WHAT RECORD-LOW INTEREST RATES MEAN FOR THE AVERAGE AUSSIE

Australia's interest rate – also known as the country's "cash rate" – is the amount of money every bank has to pay on the money it borrows.

Typically when the RBA lowers interest rates, Australia's major lenders follow.

The lower the interest rate on a loan you have with a financial institution, the less money you have to pay back.

A full back-to-basics explainer of interest rates can be found here.

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For many mortgage holders, the difference could be just a few more dollars in your pocket every month.

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If your bank passes the full rate cut on – and that is an "if" – the average mortgage holder could have an extra $33 a month.

"With existing home and business borrowers unlikely to see much of the cut and the former unlikely to spend it even if they do, the stimulus of a rate cut to the economy will be very modest," Canstar Group Executive of Financial Services Steve Mickenbecker said.

"Borrowing rates are so low already that a cut is largely irrelevant.

"Even if passed on fully, a cut of 0.15 per cent to the average $400,000 over 30 years will lower the monthly repayment by $33, not enough to make much of a difference to borrowers' spending and house purchase intentions."

You can get up-to-date information from the Federal Government's Coronavirus Australia app, available on the App StoreGoogle Play and the Government's WhatsApp channel.

Beyond Blue's Coronavirus Mental Wellbeing Support Service is a 24/7 service free of charge to all Australians. Visit the site here or call 1800512348

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The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

Source: 9News https://www.9news.com.au/national/australia-interest-rates-decision-december-2020-10-basis-points/d0db923f-f6b7-4308-baa9-8bd65dc27b72

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Finance Advice 2021