The RBA delivered some early Christmas cheer yesterday, reducing its cash rate 25 basis points to 3.0% – the lowest level for official rates since the height of the global financial crisis in 2009.
Loan Market corporate spokesman Paul Smith says the cash rate has been reduced by 1.25 percentage points so far this year and the latest cut should boost economic activity through Christmas and January before the board meets again in February.
“It was becoming clearer in the lead up to today's meeting that the economy would need an added boost to start 2013 in the right direction.”
RP Data senior research analyst, Cameron Kusher, says that, from a housing market perspective, the RBA appears reasonably comfortable with the current market performance, suggesting it’s been the collection of other, weaker, economic indicators that have compelled the RBA to cut interest rates.
“Dwelling values are 2.1% higher than what they were at the end of May this year and there has been a modest uptick in transaction volumes, which suggests that consumers are slowly responding to the previous rate cuts. The 25 basis point rate cut in October is still working its way through the data, however the RBA clearly felt that the overall economy required further stimulus.”
Smith says the outlook for 2013 is upbeat across the mortgage industry, with low interest rates and an increase in home loan enquiries.
“The past quarter has a 5% increase in enquiries for home loans and this activity should continue as consumers act upon lower rates and increasing competition between lenders.”
He says the gradual fall of rates during 2012 has opened up healthy competition between lenders this year and the latest reduction will only be further fuel added to the competitive fires.
“Consumers are going to be closely watching how their bank responds to this rate reduction… We have seen fixed rate products going below 5.0% for the first time in many years and it’s likely a number of lenders will respond with even lower rates.”