Mortgage Choice: RBA delivers long-awaited rate cut

THE Reserve Bank of Australia (RBA) has delivered some welcome and not entirely unexpected news to the market today, with the Board announcing its first rate cut in almost two years.

“The RBA has today decided to cut the nation’s official cash rate to the new historic low of 1.25 percent, marking the first rate cut since August 2016,” Mortgage Choice chief executive officer Susan Mitchell said.

“While today’s decision will no doubt bring relief to borrowers across the country, the question now is how soon, and by how much will the nation’s lenders pass on the savings to borrowers?

“Throughout 2018, the Reserve Bank made it clear that leaving monetary policy unchanged would be consistent with achieving sustainable economic growth and its inflation target of 2-3 percent. However, a weakened housing market, consistently lacklustre inflation and mixed messages from the labour market, may have encouraged the Board to shift its long-held stance on monetary policy.

“In the minutes of the May Monetary Policy meeting, the RBA Board said that if labour market conditions deteriorated, the Bank would be inclined to lower the cash rate. Given that the nation’s unemployment rate and underemployment rate rose month-on-month to 5.2 percent and 8.5 percent respectively, the RBA Board may have been pressured into lowering the cash rate in order to help stimulate the economy.

“Today’s cash rate cut is good news for the Australian property market which could see a boost from lower interest rates. According to the latest CoreLogic Hedonic Home Value Index, national dwelling values fell 0.4 percent in April and 7.3 percent annually," Ms Mitchell said.

“The Reserve Bank would be acutely aware that any cuts to the cash rate may serve to bolster overall activity in the property market and while I do not see dwelling values rebounding to their 2017 peak any time soon, monetary policy stimulus could help put a floor under falling dwelling values."

With the Board opting to trim the cash rate by 25 basis points, Ms Mitchell said all eyes will now be on the nation’s lenders.

“If recent history is anything to go by, the last time the RBA cut the official cash rate, few lenders actually passed on the full rate adjustment to borrowers, however lenders would be aware of the intense public backlash they would receive if they did not deliver some relief to borrowers," Ms Mitchell said.

"Financial markets are speculating that a second rate cut is on the cards in 2019, and some economists predict as many as three rate cuts by Christmas. Regardless of what the RBA has in store, I urge anyone looking to secure a home loan to speak to their local mortgage broker to ensure they are getting a good deal.

“Interest rates are already hovering at historic lows, and if lenders respond to the RBA’s move by slashing their interest rates, there is an even more compelling case for those with property buying plans to take action.

“Mortgage Choice brokers have access to a panel of over 25 lenders with varied lending policies and preferences catering to a wide range of borrowers so we can help borrowers get the most suitable deal, whatever the cash rate,” Ms Mitchell said.

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