RBA cuts rates to 4.25
The RBA has just given a reason for people with home loans to cheer up this Christmas as the board decided to slash rates by 25 basis points bringing it down to 4.25%. This is the first time the RBA has brought down the rates for a consecutive month since 2009.
The RBA governor Glenn Stevens said in a statement that the cut was mostly influenced by what’s happening in Europe, “The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead. Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe.”
The cut was also due to the, “precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates. This has increased the scope for some easing in monetary policy in a number of countries.”
Stevens wrapped up the statement stating that, “Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate. The Board will continue to set policy as needed to foster sustainable growth and low inflation over time.”
As most economists have predicted of a rate cut on December, the RBA’s recent move no longer came as a surprise. Cameron Kusher, RP Data’s senior research analyst, was already expecting the rate cut, especially due to the present conditions of the housing market.
“The rate cut should not come as a surprise from a housing market perspective, considering the soft market conditions that first became evident in June of last year have created no inflationary pressures and have persisted.”
“In fact, capital city home values are down four per cent from their December 2010 peak and rental rates have increased by just 4.6 per cent over the 12 months to September.
“The successive improvements to debt servicing positions borne through the two interest rate cuts over the last two months will be a welcome improvement to anyone with a mortgage.
“The primary benefit from the rate cut is likely to be seen in a continued improvement in consumer sentiment which should lead to an uplift in housing transaction volumes which are currently tracking about 10 per cent below the five year average nationally,” Kusher stated.
Leanne Pilkington, Laing+Simmons Real Estate Agents’ general manager believes that the cut will be able to help boost investments in the property market. Pilkington shared, “This trend is paramount to buyer confidence and is another factor supporting what is already a buyer’s market. Prices are stable and vendors are necessarily being more realistic when it comes to price. The emergence of a downward interest rate trend will have further positive bearing on affordability.”