Pensioners’ savings to be hit hardest as cash rate plummets to new historic low

The Reserve Bank of Australia has reduced the cash rate yet again, today, with interest rates being slashed by 25 basis points to a historic new low of 0.75 per cent.

The news comes just three months after the rate plummeted to an all-time low of 1 per cent in July, which was the second drop in two consecutive months after it was lowered from 1.5 per to 1.25 per cent back in June.

Announcing the news on Tuesday afternoon, Governor Philip Lowe warned that the country could face an extended period of low interest rates in a bid to improve employment rates and reach the inflation target.

“The Board took the decision to lower interest rates further today to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target,” Lowe said in a statement.

“The economy still has spare capacity and lower interest rates will help make inroads into that. The Board also took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and inflation outcomes.”

While the cut may spark relief among mortgage holders and prospective first-time buyers across the country, as banks are likely to pass on the rate cut by reducing their rates for borrowers, the news wasn’t music to everyone’s ears with pensioners in particular predicted to feel the pinch.

Reacting to the news, National Seniors described the impact of the cash rate cut as “devastating” for those older Australians who rely on the Age Pension, due to the effect it will have on the returns they make on their savings.

National Seniors’ Government Affairs Advisor Craig Sullivan said today’s rate cut will make cancel out any bonuses that pensioners stood to gain following the Coalition’s decision to cut deeming rates in July, saying: “The government trumpeted its deeming rate cut in July as a ‘bonus’ for pensioners. Well there is no bonus now, because returns on savings are going to be even less, yet the government still deems anyone with a balance over $51,800 to be getting a return of 3 per cent.

“I challenge anyone to find a bank willing to offer a 3 per cent return on a term deposit.”

Sullivan also called for the deeming rate – which is the amount the government assumes your income to be from your financial assets – to be further slashed, suggesting it should be linked to the cash rate as it was under the Hawke, Keating and Howard administrations.

He added: “Today’s rate cut just shows how inconsistent, inequitable and unfair the upper deeming rate is. The government is balancing its budget on the backs of pensioners.”

Experts and economists also responded to the news, with a majority predicting that the rate will likely drop yet again to an unprecedented low of 0.5 per cent before it rises again.

Graham Cooke, insights manager at Finder.com.au, said: “The RBA uses each cut like a defibrillator to zap the economy back to life but as the rate gets closer to zero, they are running out of options.  An injection of cash and the potential of a negative cash rate may be the only option to stimulate the economy.”