The Reserve Bank of Australia Sets Interest Rates at Unprecedented Low

low Australian mortgage rates

The Reserve Bank of Australia has cut interest rates to an all-time low. The record-breaking low of 0.5 per cent was set to protect the Australian economy from current threats. The main reason behind the decision to drop interest rates to an unprecedented low is as a direct response to the economic impact that Novel Coronavirus has had on our nation. The global outbreak of this disease has caused Australia to lose significant revenue in industries such as education and tourism. It has also created domestic economic uncertainty that has caused citizens to be more mindful of their spending. 

How has the outbreak of Coronavirus already impacted our economy?

The outbreak of Novel Coronavirus has already had significant impacts on the economy. These effects have mainly been felt in industries such as tertiary education, tourism and the accommodation sector. The stock market has also been negatively impacted, with share value plummeting across the board. As people panic, they reduce their spending on items that are not seen as necessary, which can, in turn, impact the economic state of a nation. Following the already devastating impacts of the 2019-2020 Australian bushfire crisis, people are already panicked about the state of the economy, creating further impacts on household spending. Many have predicted that the economic impact of Novel Coronavirus will hit harder than the Global Financial Crisis (GFC). It is quite possible that Australia, and many other countries around the world, will enter into a recession as a result of the disease. 

The outbreak has also triggered an international response, that although focused on the protection of public health, will inevitably see economic consequences. Travel bans have been announced for China, Iran and South Korea so far. With China being the biggest tourism sector in Australia, the industry is expected to lose billions of dollars in revenue. This contributes to an overall weakened state of the economy, which directly affects the property market and property value. 

Public reaction to this epidemic

Novel Coronavirus has caused many citizens to panic. This has been apparent through individuals stockpiling on items such as canned goods, toilet paper and hand sanitiser. Others have been purchasing and wearing surgical face masks in an attempt to try and protect them from getting sick. People have also cancelled holidays both overseas and within Australia over fears of getting Coronavirus. A drop in consumer spending results in economic damage and is potentially one of the reasons that the Reserve Bank of Australia decided to enforce the lowered interest rate. 

What does this mean for the property market?

The property market is directly impacted by the state of the economy, so COVID-19 will inevitably impact upon property sales and prices. The rental property market has seen immediate impacts on the government’s decision to implement a travel ban from mainland China. Many international students were set to return to Australia for the start of the university year. As a large number of students have not been able to return, student accommodation and rental properties have felt the effects. The decrease in demand will no doubt be felt financially. 

Looking at the buyer market, COVID-19 is expected to impact property sales also. While no one can predict the future, several scenarios could result from the outbreak of disease. There could potentially be a decrease in Chinese investors purchasing property within Australia, as they are currently unable to enter the nation to research the local property markets. Additionally, the state of the Chinese economy could also restrict the ability to purchase because of the limited availability of funds.

Within Australia, people are panicking, stockpiling items such as toilet paper, hand sanitizer, tissues, medicines, rice, pasta and canned goods. This panic could easily translate to the housing market, as people may be hesitant to buy into the market in this economic uncertainty over fears of a potential recession in the future. This is the main aim of the Reserve Bank of Australia’s decision to set interest rates at 0.5 per cent. They hope that this will encourage people to purchase as a result of the low-interest incentive. This is why, when the economy starts to slow down, lower interest rates are introduced, and the demand for property increases.

As the property market is often seen as a much lower risk investment than that of the stock market, people may actually withdraw funds from shares and put the money towards buying property. If this were to occur, buyer demand would increase. As the stock market has already reached new lows, many may decide to take the path of property investment. 

While the Reserve Bank of Australia has introduced an interest rate of 0.5 per cent, many of the big banks have decided not to follow. The four big banks include Westpac, National Australia Bank (NAB), Commonwealth Bank and the Australian and New Zealand Banking Group (ANZ). These banks passed on enforcing full RBA interest rate cuts. 

What is going to happen as COVID-19 continues to spread?

It is difficult to say how Novel Coronavirus will affect the property market in the future. It will be influenced by a range of factors including the severity of the spread and for how long travel bans continue. No one can predict the future, so only time will tell how much COVID-19 will impact Australia and the world. 

If one thing is clear, though, it has already played a significant role in influencing the state of our economy. Travel bans have seen billions lost in revenue across tourism sectors, and accommodation and hospitality industries. While no one can predict the level of impact, it is clear that there will be some effects from Novel Coronavirus on the state of the property market, whether it be short or long term. Australian citizens must come together and not panic in the face of adversity. We must all look after each other and unite as a nation to help those that need it during this time. 

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