End of year rate cut: What is the likely impact?

by External13 Oct 2016
The Reserve Bank of Australia has chosen to leave the cash rate on hold in October after the most recent cut from 1.75% to 1.5% in August.
 
The decision was expected according to a survey of 33 economists by finder.com who unanimously forecast that rates would be put on hold for the time being. However, there is mounting pressure for a rates cut which has some experts predicting another cut before the end of the year.
 
A rates cut at the November meeting of the RBA board is the most likely scenario if we are to see another cut before the end of the year since it coincides with the release of the latest inflation figures. Around one quarter (24%) of the economists surveyed by finder.com are predicting a November cut, while 9% think there will be a cut in December instead.
 
Whenever the cut does occur, it is likely that the RBA will continue its easing of monetary policy for the foreseeable future. Most economists are predicting that the cash rate will bottom out 1.25% after the next cut while a minority are predicting that rates will fall again to 1% before bottoming out.

Impact on the property market
 
According to the latest figures from the Australian Bureau of Statistics, Sydney housing prices are growing more slowly at a rate of 3.6% in the year to June, falling behind Melbourne’s growth rate of 8.2%. The weighted index for the eight capital cities grew by 4.1%.
 
While an interest rates cut is likely to increase demand, the impact is unlikely to be very large. The long period of low interest rates has meant that a rates cut may not have as big of an impact on decisions to buy or sell property as it would have had five years ago.
 
While property market growth has slowed, the Australian economy is fairly well positioned. GDP has grown 3.1% in the year to June, and the unemployment rate has fallen slightly. Along with other key factors such as population growth, this shows that the property market is likely to grow steadily, if at a slower rate, over the coming years.
 
About the author
 
Rapid Finance are expert finance brokers who specialise in finding suitable finance solutions for their customers, including home loans, personal loans, and car loans.

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