RBA makes July cash rate decision

The move was widely anticipated by the industry with two in three economists predicting the July rate cut. 

The new rate means there has been a 50 basis point deduction in two months, after the year started with a rate of 1.50 and then went down to 1.25 in the cut last month. 

According to finder, most experts believe the rate is not done falling yet, with 72 per cent seeing the bottom of the cycle at 0.75 per cent and 32 per cent anticipating a bottoming out of 0.5 per cent. 

Shane Oliver, head of investment strategy and chief economist at AMP Capital, sided with the rate being slashed in July, adding that more rate cuts will be needed.

“The June 0.25 (percentage point) rate cut has not been enough for the RBA to achieve its objective of lowering employment, boosting wages growth and pushing inflation back to target,” Mr Oliver said.

The new rate of 1 per cent will have a flow on effect to banks, with Macquarie analysis predicting that NAB would be the hardest hit. 

NAB would see a 3.8 per cent reduction in profit this financial year and 8.6 per cent in 2020. 

In numbers run by Macquarie, it found that Commonwealth bank would take a profit hit of 2.5 per cent this financial year and 7.4 per cent in the next. 

Westpac would see profit fall 2.2 per cent in 2019-20 followed by 5.8 per cent in 2020-21.

The discrepancy in impact is due to banks that rely on retail deposits for funding being hit the hardest in a low rate environment. 

There is now a fear that there will be a race to the bottom among the banks as term deposits and savings accounts rates rapidly edge towards zero. 

The banks have yet to respond to show if they will pass on this new rate in full but given that many rates, particularly savings rates, have been cut by close to 30 basis points, there may not be too much room to move.

Eliot Hastie

Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms. 

Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.

Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).

You can email him on: [email protected]