on air now

The winners and losers of the historic interest rate cut

3aw drive

The Reserve Bank of Australia has cut interest rates by 0.25 per cent, bringing interest rates to a historic low of 1 per cent.

It’s the first time since 2012 that the RBA has cut interest rates twice in consecutive months.

Finance guru Scott Haywood explained who will win and lose from the cut, and what it says about the state of the economy.

LOSERS – Term deposit investors and retirees

Term deposit investors and retirees are the losers of the rate cut.

“There will be a lot of retirees who will be really bleeding,” he said.

“If you’re an investor in term deposits you’ll be disgruntled.

“Most people won’t have term deposits that go for three or five years. They’ll probably do it for three months, or six months, or twelve months, so you can get the interest and the end.

“Now, $100,000 term deposit that you have for a year may give you $1900, which means that investors are going to have to go back and take risks, which may mean other types of hybrids or bonds, or they might have to go back to the share market.”

WINNERS – Mortgage holders

It’s going to be good news for mortgage holders.

“You will probably see the banks make a move, however I’m not expecting any of them to pass on the full cut,” Scott predicted.

ANZ has since announced they will pass on the full cut, decreasing variable interest home loan rates by 0.25 per cent.

What does it say about the state of the economy?

Scott said the government is facing a big economic challenge.

“Unemployment across Melbourne and Sydney is creeping up,” he said

“When unemployment starts to creep up in capital cities that can mean that there are even bigger issues with unemployment in regional areas.

“Secondly, people haven’t had a wage increase or a bonus in about six or seven years.

“Thirdly, inflation is insipid across Australia — 1.4 per cent inflation.

“It’s a real challenge for the government, but at least they’ve made a move.”

Press PLAY below for more.

3aw drive