The RBA just slashed interest rates to 0.1%. What will that mean for your mortgage?

By Niko Iliakis ·

After weeks of foreshadowing, the Reserve Bank of Australia made the extraordinary decision to cut interest rates at its latest policy meeting this afternoon. The official cash rate now sits at 0.1% — the lowest it’s ever been.

In his post-meeting statement, RBA Governor Philip Lowe said the move will help quicken the pace of economic recovery, and “the Board is prepared to do more if necessary.”

"With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs. Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago," he said.

The RBA also announced a number of changes to key policy rates aimed at keeping borrowing costs low. This includes trimming the Board’s three-year bond yield target and term funding facility rate from 0.25% to 0.1%.

The interest rate paid on exchange settlement accounts will also be cut from 0.1% to zero. This applies to commercial bank deposits held with the RBA. Typically, the Board keeps the exchange settlement rate a quarter of a percentage point below the cash rate, but since March it has been held at 0.1%.

By reducing it to zero, the Board hopes to encourage banks to lend out their cash, rather than keep it idle in the RBA’s strongbox.

The RBA will also purchase $100 billion of government bonds with maturities of around five to ten years, officially putting it on the quantitative easing path. These purchases will take place over the next six months, with the first auction to be held this Thursday.

"Under the program to purchase longer-dated bonds, the Bank will buy bonds issued by the Australian Government and by the states and territories, with an expected 80/20 split," said Lowe.

"The combination of the RBA's bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets.”

More colour on the shape of economic recovery will be provided on Friday, when the RBA releases its quarterly statement on monetary policy.

How will banks respond?

Following the first rate cut of the year in March, 69 lenders in our database passed on the full cut to variable rate customers, while 12 passed on only part of the cut.

Right now, the average variable rate sits at 3.34% p.a. If lenders pass on today’s cut in full, the new average will be 3.19% p.a., which would equate to savings of $33 a month for an owner occupier making P&I repayments on a $400,000 loan.

While a few lenders have already moved to cut variable rates following the RBA’s announcement, there’s a good chance most cuts we’ll see will be applied to fixed rates, as was the case following this year’s second rate cut.

RELATED: Which banks have cut home loan rates in November?

On the other side of the coin, depositors will likely see the interest rates on their savings accounts fall even further. Just last month, we recorded 68 cuts to at-call deposits across the market, leaving the average ongoing savings rate at a paltry 0.55% p.a.

Mozo’s banking expert Peter Marshall explains that banks currently have very little motivation to attract new depositors, given the range of RBA programs aimed at making funding costs cheaper.

“Their main concern is having a sufficient level of liquidity. Banks can get that liquidity from wherever they want, and retail deposits are not rated very highly when it comes to assessing that liquidity ratio,” he said.

We’ll be keeping track of which banks have cut home loan rates as word comes in. If you feel refinancing is in order, be sure to visit our home loan comparison page, where you’ll be able to filter your search by rate and type.


Latest RBA rate cuts - variable rate lender announcements

Home LoanOld rateNew rateEffective dateRate changeNaughty or Nice
3.43% p.a.3.43% p.a.Nov 11, 20200.0Thumbs Down
4.39% p.a.4.39% p.a.Nov 5, 20200.0Thumbs Down
2.44% p.a.2.29% p.a.Nov 3, 2020-0.15Thumbs Up
3.44% p.a.TBATBA
4.06% p.a.4.06% p.a.Nov 25, 20200.0Thumbs Down
4.54% p.a.4.54% p.a.Nov 13, 20200.0Thumbs Down
4.75% p.a.4.75% p.a.Nov 12, 20200.0Thumbs Down
4.78% p.a.4.78% p.a.Nov 13, 20200.0Thumbs Down
4.45% p.a.TBATBA
5.1% p.a.5.1% p.a.0.0Thumbs Down
4.55% p.a.4.55% p.a.Nov 11, 20200.0Thumbs Down
4.44% p.a.4.44% p.a.Nov 12, 20200.0Thumbs Down
3.66% p.a.3.66% p.a.Nov 17, 20200.0Thumbs Down
4.49% p.a.4.49% p.a.Nov 19, 20200.0Thumbs Down
4.51% p.a.4.51% p.a.Nov 19, 20200.0Thumbs Down
4.71% p.a.4.71% p.a.Nov 16, 20200.0Thumbs Down
2.89% p.a.2.89% p.a.Nov 13, 20200.0Thumbs Down
2.79% p.a.TBATBA
4.61% p.a.4.46% p.a.Nov 26, 2020-0.15Thumbs Up
4.52% p.a.4.52% p.a.Nov 10, 20200.0Thumbs Down
4.25% p.a.4.25% p.a.Nov 11, 20200.0Thumbs Down
4.61% p.a.4.61% p.a.Nov 9, 20200.0Thumbs Down
4.56% p.a.4.56% p.a.Nov 9, 20200.0Thumbs Down
4.98% p.a.4.98% p.a.Nov 19, 20200.0Thumbs Down
2.49% p.a.2.34% p.a.Nov 29, 2020-0.15Thumbs Up
4.58% p.a.4.58% p.a.Nov 9, 20200.0Thumbs Down

Listed rates are "standard variable rates" of selected lenders where available. 

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Niko Iliakis
Money writer

Niko Iliakis writes about home loans, property and interest rate movements for Mozo. With an eye for facts and figures, Niko deep-dives into topics to help readers understand key info and make more informed financial decisions.