With interest rates at historical lows following several rate cuts last year, new research has revealed that one in four Aussies had banked on a fourth cut before Christmas, with many deciding to tailor their financial decision based on this expectation.
Research commissioned by money.com.au found that 23 per cent of Aussies expected a fourth rate cut by the Reserve Bank before Christmas, while 17 per cent made financial decision to benefit from the expected cut.
The finding comes from an independent survey of a nationally representative panel of 1,006 Australian adults.
Last year, the Reserve Bank cut the official cash rate three times, with October recording the lowest rate in history and marking the first time it decreased rates over two consecutive months.
The survey found that a higher proportion of younger Australians expected a fourth rate cut late last year, with 36 per cent of under-30s and 30 per cent of under-40s banking on the cut as opposed to 15 per cent of over-60s.
Of the 17 per cent who made changes in their personal finances based on this expectation, 31 per cent said they took out, or switched to, a variable personal loan, home loan or car loan, thinking rates would continue to fall, while 11 per cent borrowed more on their home, thinking that interest rates would go down another 0.25 to 0.5 of a percentage point.
A further 10 per cent increased their personal spending, while 8 per cent planned bigger purchases for 2020 such as a holiday.
Licensed financial adviser and money.com.au spokesperson Helen Baker said that the survey results suggest that a proportion of mortgagors will usually borrow the maximum amount they can, with not much give.
“For borrowers who expected the fourth rate cut last year, we can see that many chose to increase their borrowing rather than pay down more of the principal and pay debt off faster. This indicates that they are not concerned about their debt level,” Ms Baker said.
“It would indicate that they believe their employment income will continue and they are comfortable with their ability to service loans at a higher level.
“They are unlikely to have concerns that reduced interest rates is a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector.”
Cut on the horizon
Prior to the RBA’s first decision of the year in February, industry commentators and finance pundits had overwhelmingly bet on no movement; however, many insisted that a cut is still very much on the horizon.
According to Finder’s RBA Cash Rate Survey, nearly four out of five economists who made a forward prediction (not including February) forecast a cash rate drop by May 2020 (79 per cent, 23/29).
A quarter of experts predict a cut in March (24 per cent, 7/29), while nearly a third predict a cut in April (31 per cent, 9/29). Another quarter predict a cut in May (24 per cent, 7/29).
Only two of the 39 experts (5 per cent) on the panel thought the eventual move, whenever it happens, would be a rise.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.
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