Stevens says the cut is expected to add some further support to demand, “to foster sustainable growth and inflation outcomes consistent with the target,” citing modest income growth and the Australian dollar, which fell steeply in the wake of the RBA’s announcement.
Political instability may also factor into the decision, with confidence waning in some areas of the economy as Canberra sees increased leadership speculation.
The Reserve Bank has to strike a balance between economic growth and growth that risks overstimulating the housing market.
Experts missed the early mark
“Lower mortgage rates have the potential to add some fuel to what are already strong housing market conditions,” says RP Data’s Tim Lawless.
Dwelling values Australia’s capital cities have increased by 19.6% since rates began their downward trend in November 2011.
“Lower consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015.”
Lawless says the cut could see the standard variable mortgage rate fall to 5.7% and discounted variable rates to 4.85% – the cheapest home loans since July 1968.
finder.com.au spokesperson Michelle Hutchinson agrees today’s cut was quicker than anticipated.
“28 of the 30 leading economists and experts from the finder.com.au Reserve Bank Survey got it wrong, as they were forecasting no change today,” she says.
“There is still a chance we’ll see the Reserve Bank lift the cash rate, with 16 of 30 experts expecting to see a rise within the next 18 months.”
Will lenders pass it on?
“We hope lenders will pass on the full rate cuts and more to their variable rate home loan customers because there’s no excuse not to pass on the full cuts,” says Hutchinson.
Bank of Queensland has already announced it will lower rates in line with the news.
For the full story visit http://www.realestate.com.au/blog/rba-rates-february-2015/?pid=ref-buy-homepage-feature-1