For the third time in five months, the central bank has cut the official cash rate to a new record low of 0.75 per cent. Meaning the cash rate has now been slashed by a cumulative 75bps over this period.
This move is aimed at supporting jobs growth and ensuring that the inflation rate closer to the RBA’s medium-term target of 2 to 3 per cent. Market observers were anticipating the RBA’s decision in light of recent interest rate cuts from its foreign counterparts in the US and Europe. Following the US Federal Reserve’s recent cut to its funds rate, AMP Capital’s chief economist Shane Oliver observed that it “reinforced” the need for further easing from the RBA in order to maintain downward pressure on the Australian dollar.
This cut to the cash rate comes despite evidence of a recovery in the housing market, which analysts have partly attributed to the RBA’s cuts in June and July.
Latest Hedonic Home Value Index from CoreLogic has revealed that national home values increased for the second consecutive month, rising by 0.9 per cent in September, following on from a 0.8 per cent increase in August. Tim Lawless, CoreLogic’s head of research, said that the improvement in housing market conditions was offset by signs of further weakness in the labour market.
“A trend towards higher unemployment and a slowdown in jobs growth were likely the primary factors in the RBA’s decision to cut rates to a new low, as well as concerns around persistently weak household spending, subdued wages growth and low inflation,” he said.
The focus will now be shifted to mortgage rates, with Australia’s lenders expected to pass on the RBA’s cuts to home loan customers.
It certainly seems wise to review home loans every time the RBA makes an adjustment to the cash rate to take advantage of the low rate environment.
“There’s no prospect of rates going up any time soon so this should be a shot in the arm for consumer confidence. With Christmas approaching, the domestic economy will lift if consumers have a change of heart and start spending again,” said managing director of mortgage aggregator Finsure John Kolenda, encouraging mortgage holder to take advantage of record low, interest rates opportunities.