The Reserve Bank has announced the first interest rate cut in 12 months today, with the official cash rate reducing 25 basis points to 1.75% pa. This is the first movement in interest rates since May 2015. Economists were fairly split about what the RBA would do this afternoon with many admitting it was a 50/50 call.
On the one hand economic growth is still ticking over, the labour market continues to improve and the housing market remains relatively buoyant.
It is the flipside which appears to have forced the Reserve Banks hand, in particular inflation figures released last week which Governor Glenn Steven’s described as “unexpectedly low” and “point to a lower outlook for inflation than previously forecast.” The RBA chief also observed there has only been moderate growth in global markets, and singled out China for particular mention.
In its decision, the RBA carefully considered the impact an interest rate cut would have on the housing market. Historically low rates would generally be considered fuel for what many believe to be an already overpriced housing market in Sydney and Melbourne. Governor Stevens pointed to stronger lending standards as a result of regulator pressure on the banks appearing to do its job for the moment. “At present, the potential risks of lower interest rates in this area are less than they were a year ago,” he said.
NAB seized the initiative to announce it was passing on the rate cut in full quickly after the announcement. All eyes now turn to the remaining lenders to see what their response will be.
Tower Mortgage Broking are a professional Sydney based mortgage broker. For expert home loan advice on how today’s decision impacts your financial situation, contact us today.
Photography by Scott Lewis