Hibernating cash rate leaves room for further cuts

The RBA opted to leave the cash rate at 2.75% at yesterday's meeting - but this simply leaves opportunities for further cuts well and truly open



The official cash rate, currently the lowest in 53 years, remained at 2.75% following the RBA’s July meeting yesterday, despite recent share market volatility – but this simply leaves room for the Bank to drop interest rates further in coming months, according to multiple sources.

Loan Market director, Mark De Martino, says the lower interest rates are ‘injecting activity’ into the home finance market and says the prospect of another rate cut would create competition between lenders who wanted to gain market share.

“The looming federal election is creating uncertainty about exactly where the economy is heading, but most lenders are anticipating further rate reductions, evidenced by their continued aggressive moves with fixed interest rates,” says De Martino.

Mortgage Choice spokesperson, Belinda Williamson, says there are indicators of an improving outlook for the Australian economy, which the RBA would have taken into consideration before making its decision yesterday.

“The strength of the Australian dollar has lessened recently and this is expected to have a positive impact on parts of the economy once the effect trickles through. Specifically, the impact should be felt in the non-mining sectors such as retail, manufacturing and tourism industries, which in turn will likely drive local employment.”

Furthermore, says Williamson, there has also been increased interest and activity in the domestic property market on the back of previous rate cuts.

“For those looking to get into the housing market, the current low interest rate environment can be extremely appealing and may be the catalyst for buying now. Lenders are competing for business and this is seen across the board, from the major banks right through to credit unions and smaller non-bank lenders.”

In May, the RBA cut the cash rate to 2.75%. The standard variable interest rate now stands at 5.9%, 0.3 percentage points lower than the level recorded three months ago.

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