News & Insights

4 Jun/19

Reserve Bank cuts rates to record lows

Australia’s Reserve Bank announced at its monthly board meeting today that it would be cutting the official interest rate 25 basis points – from 1.5 to 1.25 per cent.

Rates have remained steady at 1.5 since August 2016.

Governor Phillip Lowe said the decision was designed to support employment growth and provide greater economic confidence.

“The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020,” he said.

“This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports.

“The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.”

What an interest rate cut means for home buyers

Interest rate cuts flow through to the market in a few ways.

Investing in property can become more appealing, as cash savings are slugged by a lower rate of interest. This should likewise contribute to a rise in investor confidence in the property market, putting gentle upward pressure on prices.

Resimax Chief Operations Officer Darren Mehl said the announcement will add consumer confidence and “bring a spark back to the property market.”

“The interest rate cut, coupled with the loosening of bank credit and the bottoming out property market is likely to bring buyers back into action, which will gradually increase competition for properties.”

If banks choose to pass on all or a portion of the cut, this offers relief for home owners and first timers looking to buy in the form of lower monthly mortgage repayments.

“First Home buyers are the real winners here,” said Darren.

“The recent announcement from the newly elected Government incentivising first home buyer with a reduced deposit will open up doors and make entering the property market more accessible. Lower prices, lower interest rates and more access to funds will result in more buyer interest.

“We’re expecting increased interest in the market, especially at the affordable end where both first home buyers and investors can buy great value house and land packages, under $500,000, in great locations in Melbourne with outstanding growth potential.”

Read the RBA Statement in full