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Banks are slashing variable rates as the RBA keeps the official cash rate on hold again

09 September 2021

The Reserve Bank has kept the official cash rate on hold again this month, but it hasn’t stopped banks from slashing variable mortgage rates to try and lure customers.

Banks have been cutting variable and short-term fixed interest rates while at the same time lifting long-term fixed rates from their record lows a few months ago.

According to RateCity, variable interest rates that are under 2 per cent have gone from 28 to 46 in the last two months.

The cheapest variable rate on the RateCity database is just 1.77 per cent, with the average for new customers sitting at 2.72 per cent.

It’s an opposite story for longer-term fixed loans, none of which are under 2 per cent, after having more than 30 earlier in the year.

"Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates," RateCity's research director Sally Tindall told ABC.

"Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

"Well over half of all mortgage holders are still on a variable rate. That's a huge market of potential refinancers for the banks to target."

Reserve Bank governor Philip Lowe said he expects the economic slowdown to pick up as restrictions ease once again out of current lockdowns, but there was no end in sight for record low interest rates.

"The Delta outbreak is expected to delay, but not derail, the recovery," he said.

"As vaccination rates increase further and restrictions are eased, the economy should bounce back. There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year.

"Much will depend on the health situation and the easing of restrictions on activity.

"In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year."

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