03 February 2015

RBA Shocks Markets with Cash Rate Cut: Mortgage Relief for Townsville Investors and First Home Buyers

The Reserve Bank of Australia (RBA) has shocked the markets today with a cash rate drop to 2.25 percent after being left on hold at 2.5 percent since August 2013.

The changing conditions in the housing market across the country featured in the RBA policy announcement today as a measure to assess and contain economic risks, typically driven by an easing in capital city prices.

RBA Governor Mr Stevens said; “Credit growth picked up to moderate rates in 2014, with stronger growth in lending to investors in housing assets. Dwelling prices have continued to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market.”

The overwhelming majority of economic commentators expected the RBA to leave interest rates on hold. Based on the finder.com.au survey of 30 economists and commentators, they found that 28 expected the cash rate to remain unchanged.

Mr McMullen from RAMS said that with consumer confidence and inflation low, the RBA would cut rates to help boost the economy and depreciate the Australian dollar.

Consumer confidence has been weaker, cheaper prices in the global oil market and the weakening of the Australian dollar were major factors in the decision.

“Market sentiment has fundamentally shifted over the past two months as oil prices have plummeted and concerns about deflation in Europe grow. This has led to markets expecting 0.50 percent in the rate cuts in the first half of 2015, “Mr Caelli from ME Bank said.

Today’s rate cut would normally provide a boost to the local market and lead to improvements in building starts if it were not for low business confidence and high unemployment numbers in the local North Queensland market, Mr McLeod said from MCINC Investments and Consultancy.

Providing cheaper mortgages for first home buyers and existing mortgage holders on variable rates is a relief for the local market, Mr McLeod commented.

However, in a low confidence market positive downward movements in cash rates need support by businesses leveraging a lower Australia dollar to attract export dollars, and more favourable private and government investment in critical infrastructure and facilities developments to kick start the economy with more jobs and cash flows, Mr McLeod said.

Reference:
Reserve Bank of Australia – www.rba.gov.au/
McINC Investments and Consultancy
Raid Realty Australia – www.rapidrealty.com.au
Townsville Real Estate Blog – http://townsvillerealestate.blogspot.com.au/
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