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Aussies jumped the gun with rate expectations

Almost a quarter of Australians expected a fourth cut to the cash rate from the Reserve Bank, prompting some to make premature financial decisions, according to new research.

According to new research from financial information platform Money – which involved a survey of 1,006 Australians – almost a quarter (23 per cent) of respondents expected a fourth cut to the cash rate from the Reserve Bank of Australia (RBA) ahead of Christmas in addition to the central bank’s cuts in June, July, and October. 

Such expectations prompted 17 per cent of respondents to make pre-emptive financial decisions, which they expected to pay off following a fourth rate cut.  

The research found that a higher proportion of younger Aussies expected a fourth cut, with 36 per cent of those under 30 and 30 per cent of respondents under 40 anticipating the move. In comparison, just 15 per cent of respondents over 60 said they expected a cut.

Further, of the 17 per cent of respondents who made changes to their personal finances, 31 per cent took out, or switched to, a variable personal loan, home loan or car loan, 11 per cent borrowed more on their home, 10 per cent increased their personal spending, and 8 per cent planned bigger purchases for 2020.

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Reflecting on the research, financial adviser and Money spokesperson Helen Baker said the results show that contrary to market expectations, Australians do not respond to rate cuts by paying down debt.   

“The survey results suggest that a proportion of mortgagees will usually borrow the maximum amount they can, with not much give,” she said.

“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.

“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 are a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector.”

[Related: RBA weary of rate-driven mortgage boom]

Aussies jumped the gun with rate expectations
Aussies jumped the gun with rate expectations
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