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RBA moves on rates

By Vivienne Kelly
14

For the first time since August 2013, the Reserve Bank of Australia has changed the official cash rate.

Despite 28 of finder.com.au’s 30-strong expert panel predicting that the central bank would leave rates on hold, the cash rate has been dropped 25 basis points to just 2.25 per cent.

Only Westpac’s Bill Evans and RAMS’ Nathan McMullen accurately predicted the movement during this month’s finder.com.au survey.

Mr McMullen’s prediction was based on low consumer confidence and inflation and he said a rate cut would help boost the economy and depreciate the Australian dollar.

Towards the end of January, the Real Estate Institute of Australia (REIA) said a rate cut this month would be “justified”.

REIA president Neville Sanders said recent Consumer Price Index (CPI) figures gave the central bank room to move.

“With inflation under control, combined with a slowdown in housing finance, it’s appropriate that the RBA board seriously considers a cut in interest rates at their meeting next week,” he said at the time.

Speaking about the decision, LJ Hooker CEO Grant Harrod said the RBA’s unprecedented move to stimulate the economy should boost employment, help wage growth and propel the property market.

Despite concerns about price growth in Sydney and Melbourne, the rate cut should stimulate other markets such as Brisbane, which has seen lower gains in the current housing cycle, he said.

“It is most likely to have an impact on markets across the country, particularly for first-time buyers who have felt the pressure of price growth in certain markets over the past 18 months,” Mr Harrod said.

“This historic cut will give young people access to cheaper mortgages, something previous generations have not enjoyed and will hopefully instil them with confidence to come back to the market.”

Mr Harrod said investor activity is expected to rise as a result of today’s announcement, with potential capital growth and income return making real estate more attractive than other assets.

Building construction is also tipped to increase with a possible surge in off-the-plan construction to meet predicted increased buyer demand, Mr Harrod said.

LJ Hooker national research manager Mathew Tiller described the RBA’s move as surprising, given the recent slump in oil prices and a lower Australian dollar, but said it was a positive move for the property market.

“These two factors alone would have provided RBA with enough breathing room to continue their `wait and see approach’ and keep rates on hold for the time being,” he said.

“Any improved economic conditions means we will see interest in property continue on from its strong close to 2014.”

Fears of a housing bubble, particularly in Sydney, have kept rates on hold but latest figures show moderated growth predicted for 2015, he said.

The lower Australian dollar could result in some upturn in regional areas, particularly in tourism hot spots, while cheaper oil prices could also bring some benefits to the industrial and commercial markets as well as help rural areas, he said.

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