The move was widely anticipated by the industry with two in three economists predicting the July rate cut.
The new rate means there has been a 50 basis point deduction in two months, after the year started with a rate of 1.50 and then went down to 1.25 in the cut last month.
According to finder, most experts believe the rate is not done falling yet, with 72 per cent seeing the bottom of the cycle at 0.75 per cent and 32 per cent anticipating a bottoming out of 0.5 per cent.
Shane Oliver, head of investment strategy and chief economist at AMP Capital, sided with the rate being slashed in July, adding that more rate cuts will be needed.
“The June 0.25 (percentage point) rate cut has not been enough for the RBA to achieve its objective of lowering employment, boosting wages growth and pushing inflation back to target,” Mr Oliver said.
The new rate of 1 per cent will have a flow on effect to banks, with Macquarie analysis predicting that NAB would be the hardest hit.
NAB would see a 3.8 per cent reduction in profit this financial year and 8.6 per cent in 2020.
In numbers run by Macquarie, it found that Commonwealth bank would take a profit hit of 2.5 per cent this financial year and 7.4 per cent in the next.
Westpac would see profit fall 2.2 per cent in 2019-20 followed by 5.8 per cent in 2020-21.
The discrepancy in impact is due to banks that rely on retail deposits for funding being hit the hardest in a low rate environment.
There is now a fear that there will be a race to the bottom among the banks as term deposits and savings accounts rates rapidly edge towards zero.
The banks have yet to respond to show if they will pass on this new rate in full but given that many rates, particularly savings rates, have been cut by close to 30 basis points, there may not be too much room to move.
First comment down there. Absolutely not right. Great move by the RBA. Had to be done.
You mean achieve its objectives of lowering UNemployment?
Another bad call from a Reserve Bank. Real inflation – ie that which households feel, is rising. Wages have not. Squeezing the punter is hard as we have almost no gas in the tank or cash in our wallets. Mortgage rates drop only when the banks decide they do. If they have fewer deposits owing to low TD rates, then they borrow offshore or raise by other instruments – more expensive. Who pays? The borrower. That borrower has had a reprieve if buying afresh…yet those whose mortgage goes up or does not drop whilst prices rise, suffer.
We are meant to be in the boom times. Or at least good times, for many years. That was a period when interest rates should have risen not fallen. There is now no buffer for when the real downturn comes – that might be as soon as 12mths or it may be a few years…. either way, a 1% buffer is nothing. remember 2007? rates were higher and went higher and only that gave us the room to move to inject something into our real economy.
If China decides to buy resources from elsewhere as a pay-back for our US backing and banning of that phone company with 5G…. then we are in deep mire….very deep. We are one of the most indebted countries in the world when it comes to debt to GDP and household debt. Asset prices fall…. we end up with a mess.
When will these Central Bankers (spelled with a different letter, lol) actually comprehend real world economics and finance and realise that they have caused the housing and stock market bubbles? And will be powerless to stop the carnage.
The Emperor has no clothes… nobody wants to tell him for fear of consequences. What hope do we have as advisers, when looking at long term asset allocation for retirees? Those who cannot recover losses. would love to know other adviser’s opinions…