Feeling a bit richer this week? Lots of people are, and that’s exactly how the RBA and the federal government want you to feel.
 
When the RBA cuts interest rates once, nobody feels any different. But a double cut is a statement.
 
Last week the double rate cut came through for the first time since 2012 and coupled with income tax relief, it’s having an instant impact.
 
Despite the fact that none of the big banks have passed on the full 0.5% cut, any mortgage-holder owing $500,000 will receive an instant benefit. There are a few hundred dollars in your pocket this month that weren’t there last month and that’ll make you feel a little richer, a little more inclined to spend and invest.
 
And that’s exactly the aim. The RBA is trying to get consumers to buy, and businesses to invest and employ.
 
The instant impact of the double rate cut and the income tax cuts is reflected in auction clearance rates, which were around 50% 12 months ago, but have spiked above 70% in the past few days.
 
With term deposits being stripped out of banks and reinvested in shares, the share market is also buoyant, within 1% of the all-time highs reached in 2007.
 
However, despite the positive feeling, don’t expect a third cut in August. The RBA will settle now, with a third cut possibly on the horizon for Melbourne Cup Day.
 
This however, would be disastrous for retirees, whose income is slashed with every rate cut, and could be looking at returns with a 1 on the front by the end of the year.
 
The turbulence of FY19 is now behind us: the federal election, tax reform and franking credit changes all settled. It’s now time to forget all that and move into the new financial year positively and proactively.