August Cash Rate Update
The Reserve Bank of Australia (RBA) has made its August cash rate announcement, following two consecutive cuts in the preceding months that totalled fifty basis points.
The central bank today held the rate at its record low of 1.0%.
The decision was “widely expected,” according to CoreLogic head of research Tim Lawless, especially considering that cutting the official cash rate three months in a row has only happened twice before: once in early 2001 and again during the Global Financial Crisis in late 2008.
“The pause in the cutting cycle will give the RBA time to assess the effects of earlier rate cuts on the economy and consumer spending,” Lawless explained.
“The housing market has been a key beneficiary of lower mortgage rates, with a trend towards stability over the first half of the year converting to a subtle rise in capital city housing values in July.”
However, Lawless noted that the improvement in housing market activity is not solely due to lower interest rates.
He explained, “There has also been the added stimulus of looser home loan serviceability assessments, following APRA’s decision to scrap the minimum 7% interest rate floor used to assess a borrower’s ability to repay a mortgage, as well as the confidence injection post federal election and tax cuts for low income earners.
“With mortgage rates set to remain low for an extended period of time, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery.”
While today’s decision to hold was expected, Lawless feels there is a “strong likelihood” of at least one more cut to come later this year.
However, further reductions will likely not have a significant impact on the accessibility of home lending or the improvement of property values.
“With credit policies remaining tight and economic uncertainty still elevated, we aren’t expecting a material acceleration in housing activity or housing values,” said Lawless.