The Reserve Bank of Australia has cut interest rates to a record-low level of 0.5 per cent as it looks to nullify the widespread economic damage from the coronavirus outbreak.
The 25-basis point rate cut comes a week after the Australian share market bled a staggering $200 billion as investors spooked from Aussie stocks due to virus trade restrictions.
Halting global trade and low consumer sentiment now appears to have forced the RBA's hand.
READ MORE: How coronavirus will affect you
RBA Governor Philip Lowe said the decision was made directly in response to the coronavirus threat.
"The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending," said Mr Lowe.
"As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be."
Tim Lawless, Head of Research at CoreLogic, said today's interest rate cut is unlikely to stimulate the property market.
"Lower interest rates would normally be a catalyst for an acceleration in housing demand and value growth, however there is less certainty that this will add fuel to the housing market in the current economic climate," said Mr Lawless.
"This is partly because the latest rate cut is unlikely to be fully passed on to mortgage rates. Furthermore, a low cash rate coupled with concerns around the global spread of coronavirus, has the potential to spook consumers and drag confidence lower.
"Buying or selling a home is a high commitment decision; if consumer confidence slips further from already low levels, we could see Australian households sit on their hands rather than decide to buy or sell, which would weigh on market activity."
WHAT THE INTEREST RATE CUT MEANS FOR THE AVERAGE AUSSIE
International trade blocks, halting production lines and pandemic virus outbreaks are all really confusing. What if you only care about putting food on your family's table?
Here's what the latest interest rate cut means to you.
Earlier today Prime Minister Scott Morrison said he expected the big banks to "do the right thing" by consumers and pass on any rate cut in full.
"And honestly, I don't see it any different to what Qantas did when we called out to Qantas and we said, we need your help. We need to get some people out of China. We need to get some people out of Japan. And Qantas showed up," Mr Morrison said.
IF YOU DON'T HAVE A MORTGAGE
If you don't currently have a mortgage, it doesn't mean interest rate cuts don't affect you. Today's momentous drop means your bank is likely to lower your interest rate on your savings account.
This is potentially bad news for first home buyers struggling desperately to save for a deposit, as their long-term accounts are not as effective as they once were.
If you have a personal loan - say for a shiny new car - your lender may lower your variable rate if you chose to borrow cash on that basis.
IF YOU DO HAVE A MORTGAGE
Here's where things start to get technical. Even though the Reserve Bank of Australia has cut interest rates by 25 basis points, it's unlikely that the major banks will pass on that entire amount.
After the RBA cut interest rates in October 2019 by 0.25 per cent, the big banks only passed on an average of 0.14 per cent. To their owner-occupier variable rate customers paying principal and interest.
If the banks pass on the entire rate cut in full, the average mortgage holder on a $400,000 mortgage paying principal and interest could save $56 a month or $672 a year.
If the banks pass on 0.15 per cent, the average mortgage holder would save $34 a month or $408 a year.
If the banks were to pass on just 0.10 per cent, the average mortgage holder would save $23 or $276 a year.
Impact 0.25% rate cut
Impact 0.15% rate cut
Impact 0.10% rate cut
Note: Calculations based on the average owner-occupier principal and interest rate on RateCity.com.au of 3.73%, 30-year loan term
Source: 9News https://www.9news.com.au/national/interest-rate-february-decision-rba-shock-move-during-coronavirus-crisis/290bb6a4-80d5-4b25-84de-d006096593e1