The Reserve Bank has announced its cash rate decision for June, as confidence begins to return to the property markets on the back of the Coalition’s return to government and APRA’s proposal to ease back on lending restrictions.
The RBA today cut the official cash rate at a new record low of 1.25 per cent.
Australia’s top economists and property experts were mostly expecting a cut, according to comparison site Finder, with only 5 per cent of their its panel predicting rates to hold.
Of the panel, 95 per cent of Finder’s panel correctly predicted this month to be a cut, while no experts expected a rise.
Graham Cooke, insights manager at Finder, said that this rate cut puts the Australian economy into “uncharted territory”.
“If two more rate cuts are enforced this year, we could potentially see a rate of 0.75 per cent, which is unheard of in Australia,” Mr Cooke said.
“It’s almost hard to fathom what it was like for borrowers 11 years ago with a 7 per cent cash rate, let alone the 17 per cent cash rate back in 1990,” he said
One of the experts who correctly predicted a rate cut was My Housing Market’s Dr Andrew Wilson, who “clearly” saw the RBA intention to cut rates due to unemployment rising and the recent release of GDP data for the March quarter.
“[This] will encourage the Bbank to cut, to be seen to be acting to stimulate the economy ahead of what is likely to be yet another underwhelming result for the economy,” Dr Wilson said.
Shane Oliver, chief economist at AMP, agreed with Dr Wilson’s sentiments and also correctly predicted a cut on a similar basis.
“Growth has slowed, inflation has slowed well below target, unemployment looks like it is now starting to rise when it needs to be falling to get inflation back up, and the RBA has recognised all of this (and moved to an easing bias),” Mr Oliver said.
Head of research at LJ Hooker Mathew Tiller also correctly predicted the cut, given that inflation and wages remain “stubbornly” low and that the outlook for the employment market is softer.
“We expect the RBA to cut the official cash rate at its June board meeting.
“This rate cut combined with the return of a Coalition government, APRA easing lending restrictions and the new first home buyer deposit scheme will see confidence return to property markets and in-turn increase transaction activity.”
CoreLogic’s head of research, Tim Lawless, said the decision to cut was widely expected, and attention should now turn towards mortgage rates.
“Mortgage rates for owner -occupiers are already around the lowest level since the 1960’s and lenders are generally expected to pass on most, if not all, of the cash rate cut to mortgage interest rates,” Mr Lawless said.
Looking forward, Mr Lawless said that the combination of as lowered mortgage rates, APRA’s recent loan changes (if passed) and the boost in confidence all point to an improving housing market.
Of the panel, only Christine Williams from Smarter Property Investing and Mark Brimble from Griffith University incorrectly predicted a hold.
Mr Brimble said that while conditions are pointing towards a cut soon, there was a possibility that the RBA will wait for financial year 2019-20 before making a move.
“The RBA may choose to wait for the new financial year for a range of reasons, including the finalisation of the budget bills (which get through and which don’’t) and how geo-political issues play out on the global stage and markets,” Mr Brimble said.
Meanwhile, Ms Williams believed that current employment is steady and therefore there is no need to cut rates just yet.