What do lower interest rates mean to me?
Following the RBA’s decision to lower the official interest rate to a record low 2.25%, there will be a number of flow on effects that will impact self-funded retirees and those with interest bearing bank deposits.
A lowering of interest rates reduces the incentive to save and provides cheaper borrowing costs which encourages consumers and business to take out loans to fund spending and investment.
Those relying on interest bearing deposits however, will see their returns dwindling and in many cases, barely keep up with inflation.
Consumers also benefit from lower mortgage interest rates giving them increased spending power. There is also a rise in house prices which fuels the property market and generally increases consumer wealth. This increase in wealth encourages further consumer spending as confidence will be higher.
Our Australian Dollar is likely to devalue as there are better returns available outside of Australia and so there will be less demand for our dollar.
This devaluation makes our exports cheaper helping the mining and industrial sectors but means more expensive holidays for those travelling overseas.
With the ASX performing strongly, many investors are placing their funds in local stocks in order to achieve a better return.