Call for lower interest rates

Call for lower interest rates

Posted on Wednesday, July 03 2013 at 3:56 PM

There’s an expectation of further interest rate cuts after the Reserve Bank’s decision yesterday to hold the cash rate steady.

Reserve Bank Governor Glenn Stevens says the judgement reflects an
outlook of modest future growth.

“At today’s
meeting the Board judged that the easier financial conditions now in place will
contribute to a strengthening of growth over time, consistent with achieving
the inflation target.”

The comments did, however, leave open the option for further cuts.

“The Board also
judged that the inflation outlook, as currently assessed, may provide some
scope for further easing, should that be required to support demand.”

Tim McKibbin, chief executive officer of the Real Estate Institute of
New South Wales, is disappointed with the decision, stating further falls will
be needed to avoid a stagnating property market.

“It was time to act again. We really need to see further cuts from the
RBA to support the interest rate reduction in May.

“There are people hurting at the moment and another interest rate cut is
necessary to support the property market.”

SQM Research property analyst Louis Christopher believes conditions are
already favourable under the current interest rate level,
but says the Reserve Bank Governor is telegraphing possible future falls.

“I think rates are already at a point where they’re stimulating the
economy and stimulating the housing market.

“Glenn Stevens just spoke at a lunch where he talked about the fact that
growth is still below trend and inflation is well contained. So there’s
certainly scope to cut rates down the track.

“I think the Reserve Bank will be waiting to see what the actual effects
will be on the fall in the Australian dollar before they cut further.”

Belinda Williamson, spokesperson for mortgage brokers Mortgage Choice,
says while the RBA is holding tight this month, the current environment doesn’t
rule out the prospect of future rate cuts.

“The Reserve Bank stated in its last meeting that there’s still room to
move the cash rate should the need arise. At the same time, there’s a common
view that the Reserve Bank will make at least one further cut this year, with
the odds on an August cash rate cut.” Williamson says.

Business research company BIS Shrapnel is noting lower interest rates
are driving improvement in residential markets, but the outlook is uneven.

Angie Zigomanis, a senior manager at BIS Shrapnel, says the current
interest rate environment is at historically low levels.

“Also, outside of 2009, home loan affordability in all capital cities is
at its best level since the first half of the 2000s.

“As a result, we’re seeing some improvement in some residential market

BIS Shrapnel goes on to say, however, that it expects only a modest
improvement in residential market conditions in 2013/14, assisted by the
potential for further cuts to interest rates.

“The residential market should become more buoyant over 2014/15 as the
non-resource sectors of the economy improve and take over as the main drivers
of economic growth.”

The RBA is due to meet again on Tuesday, August 6.

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