CASH RATE CUT TO 2.5 PER CENT

Written on the 13 August 2013

CASH RATE CUT TO 2.5 PER CENT

THE decision to cut the official interest rate today shows the economy is in transition, says Colliers International research director Mark Courtney.

Responding to the Reserve Bank of Australia’s resolution to lower the cash rate by 25 basis points to 2.5 per cent, Courtney says it is now lower than even during the height of the global economic turmoil of 2008 and 2009.

“The economy is showing signs of moving out of the resource and mining phase. Unemployment, which is one of the key factors taken into consideration for the RBA’s decision, is sitting at 5.7 per cent, which isn’t ideal, but also isn’t a disaster, although going forward it is expected there will be a deterioration in the job market," says Courtney.

The Big Four banks have followed the RBA this afternoon. Westpac has reduced its standard variable interest rate by 0.28 per cent to 5.98 per cent.

Both the Commonwealth Bank and NAB cut their rates by .25 per cent, to 5.9 per cent and 5.88 per cent respectively. ANZ will announce its change in mortgage rates this Friday.

Bank of Queensland reduced its mortgage rate by 25 basis points to 6.01 per cent.

RBA governor Glenn Stevens says the economy has been growing below trend over the past year and this is expected to continue as the economy adjusts to lower levels of mining investment.

The unemployment rate has edged higher and with wage growth stagnating inflation is expected to remain consistent with the RBA’s medium-term target over the next one to two years, even with the effects of the falling Australian dollar.

The RBA has maintained room to move on the cash rate and decided to exercise the option to further stimulate the economy.

“The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time,” says Stevens.

“The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.”

Stevens says the exchange rate could depreciate further in time and help foster a rebalancing of growth in the Australian economy.

CBRE head of research, Australia, Stephen McNabb says low interest rates are amongst a balance of factors impacting property.

“Rates are down which means returns on cash and related investments is low,” says McNabb.

“This will keep high yielding assets on the radar of fund managers.

“However, rates have been cut because growth is slow and indicators suggest little upside. That mix means that investors will still be cautious, particularly in relation to secondary assets.”

“We do expect growth to respond to both lower rates and the weaker AUD, although this will represent a slow improvement rather than a sharp uplift and is unlikely to be an instilled trajectory until later in 2014.”


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