RBA cuts rate in first announcement of year

RBA cuts rate in first announcement of year

Posted on Tuesday, February 03 2015 at 1:58 PM

The Reserve Bank of Australia (RBA) has today announced it is lowering the cash rate by 25 basis points to 2.25 per cent.

RBA governor Glenn Stevens says: “For the past year and a
half, the cash rate has been stable, as the Board has taken time to assess the
effects of the substantial easing-in policy that had already been put in place
and monitored developments in Australia and abroad.

“At today’s meeting, taking into account the flow of recent
information and updated forecasts, the board judged that, on balance, a further
reduction in the cash rate was appropriate.

“This action is expected to add some further support to demand,
so as to foster sustainable growth and inflation outcomes consistent with the

CoreLogic RP Data’s Tim Lawless says in reaction to the news:
“The decision by the Reserve
Bank to cut the cash rate by 25 basis points is likely to take the typical
standard variable mortgage rate down to 5.7 per cent and discounted variable
rates to 4.85 per cent; the lowest cost of mortgage debt since July 1968. 

mortgage rates have the potential to add some fuel to what are already strong
housing market conditions (dwelling values Australia’s capital cities have
already increased by 19.6 per cent since interest rates started falling back in
November 2011), however the stimulus from lower rates may not be as influential
on housing market conditions as what we have seen in the past. 

consumer confidence, stricter serviceability requirements for borrowers,
tighter lending conditions for investors, affordability challenges and low
rental yields are all factors that may contribute to the moderation in housing
market conditions over 2015.

ideal outcome for the Reserve Bank under the new interest rate setting would be
that housing market conditions continue to moderate back to more sustainable
levels, but housing demand remains strong enough to keep dwelling construction
at the current high levels and new home sales relatively high.

challenge for the Reserve Bank is to stimulate stronger economic growth without
over stimulating the housing market.”

Market chairman Sam White has concerns about the long-term effect new cuts to
the interest rate will have on house price growth: “Today’s rate cut is
certainly a game changer for the property market.

with limited supply of new properties on the market, the RBA’s decision will
most likely prolong strong sales results.

the issue remains around the long-term sustainability of the market if the
current imbalance between supply and demand of houses continues.”

Estate Institute of New South Wales president Malcolm Gunning says: “We believe this decision will help with consumer
confidence, however while the property market will continue to benefit from the
low interest rate environment, growth levels seen in 2014 are not expected to
continue this year.”

Mortgage Choice spokesperson Jessica Darnbrough
says last month’s disappointing consumer sentiment result combined with a
recent spate of poor economic data ultimately forced the RBA to take action and
cut the cash rate.

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