the rate is the interest rate banks charge each other for borrowing or storing money. This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you What is the cash rate and why does it change?. Following along are instructions in the video below:
” s going on guys. It s geordi on kia and today. I want to talk talk to you about the cash. Ray.
There s been a little hype in the about the cash rate dropping to historical lows. But what does that actually mean and how is it going to impact a property market. The cash rate. Influences are the interest rates within the economy affecting the behavior of lenders and borrowers economic activity and ultimately the rate of inflation.
The reserve bank of australia also known as the rba is australia s central bank and its primary job is to conduct the monetary policy and issue the nation s currency every month. Except january. The rba board meets together and they look at the current economic activity its environment and the recent trends and then they use that information to decide on the nation s best monetary policy. This includes setting that cash rate which really is just the interest that banks charge each other on overnight loans.
You didn t know what already banks actually lend each other money every single day and they do this just to manage their daily cash needs. So if bank a is short on cash. They can borrow the money from bank b. And this is what we call a short term loan also known as an overnight loan so this cash rate was really the interest rate that the banks charge each other to borrow for that short term period or overnight period.
The reserve bank of australia is a body corporate that s wholly owned by the commonwealth of australia and their work towards the best interest of the australian economy..
Which if you re a part of you should smash that like button. If you haven t already in the last five months from june to october. 2019 we ve had three cash rate drops of 025 basis points each if you re not sure what a basis point is it s just a point of a percentage. So from all the way back in august.
2016 we ve had a cash rate of. 15 and in the last. Five months we ve seen three drops. At 025 percent which totals.
075 percent drop so it s come from. 15 now it s down to 075. Percent cash train. Then get to pass on to the banks who decide if they want to pass it down to their clients or not they don t have to pass down the full.
025 they can decide to drop it by 01. Percent. But then they re not being as competitive with other banks in the market. If the banks then decide to pass the right down to their customers.
They re actually going to decrease the amount of interest on all of their packages..
This includes loans and savings accounts. So basically if you ve got a loan with a bank. You re going to be charged less interest for borrowing that money or if you ve got a savings account with a bank. Where you ve got money stored.
And you re earning interest. You re actually going to be. Earning less interest. Because the interest rate is coming down this encourages the population to spend more money rather than just having it there in a savings account.
Earning less interest. They re going to go out and spend it additionally. It encourages people to borrow more money at that lower interest rate to buy assets. So they can go out and buy a new car or they can go out and buy a property ultimately this just recycles more money back into the economy.
And that s what we call stimulating the economy. But basically encouraging the population to spend more money so that there s more money in the economy. And it can grow as with any business. The banks have overhead costs too they ve got to pay for officers and staff.
So that s why the interest rate that they give you doesn t match..
The cash rate set by the rba. Exactly they actually put a bit of margin on top of the interest rate that they give you and it s typically around 3 lower rates. Typically mean an increase in housing prices. There s been speculation that borrowing capacities.
Which is just the amount of money that you can borrow from a bank has increased by 15 since that cash rate was at 15. Percent and the borrowing criteria has loosened from apra this means that banks might give you up to 15 more to borrow than you previously could have giving homebuyers more money up their sleeve to spend generally us australians love the confidence boost of going out and borrowing as much as we possibly can buying the biggest house. We can afford and showing it off at the next barbecue. Which then encourages the three people that we talk to at the barbecue to go out.
And do exactly the same thing. So they all go out and borrow as much as they possibly can then they ve got extra cash to spend and they re going to go and overpay for a prop and it just creates this spiral of demand and pricing for property. The reason for this rate cut in october has been addressed by our governor of the rba phillip lowe on the 1st of october. Where he says we are seeking to make more assured progress towards both full employment and the inflation target.
We still expect to make progress on both fronts. But that progress is slower than we would like today s decision together with our decision in june and july. Which is going about the two previous rate cuts will assist on each of these fronts in doing so these decisions will promote the collective economic welfare of australian people which we will need to remember is the ultimate goal of the monetary policy. The rba is most likely just going to sit back now and analyze any of the new data that comes through from the lower cash rate.
Although there has been speculation that there s going to be another rate cut in february 2020..
What do you think is there gonna be another rate cut let me know in the comments section below so in recapping when it comes to property having that lower cash rate. Generally means that we re going to get a lower interest rate from our bank meaning. We re paying less interest on any mortgage or home loan that we ve got with a bank. Additionally.
Banks can now assess your service ability at this lower rate. Which is basically just your ability to pay back your homeland repayments at this lower assessment rate banks. May now be able to provide you a home loan approval that they couldn t have previously in addition to these owner occupiers. Now having more confidence to go out and buy their new family home investors are in the same boat.
They can actually borrow more money too. So let s when we get this sort of stampede at open homes. Where you know a hundred people are coming through the door in these bidding frenzies at auctions. Where it just drives the prices of property straight up as always seek your own professional financial advice for your current situation.
This video is just my opinion and in turn on the cash. Fry. If you want more content like this hit the subscribe button and the notification button. So you don t miss a video and until next time happy house hunting ” .
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