Again the Reserve Bank of Australia has denied the population another rate reduction, leaving the cash rate at 3 per cent. Most market analysts were expecting this outcome, however many people actually active in the market were hoping for another cut. As the real estate market continues to stabilise slowly, incentives such as decreasing rates are still helping to stimulate activity, and for that reason a further reduced rate would have been welcomed by those of us in the industry.
Governor of the RBA, Glenn Stevens explained the decision by saying that the bank was assessing the effect on the economy of market and mortgages rates at historical lows and below average loan rates for businesses, and he claims that much of the effect of this is yet to be seen.
Many didn't expect the RBA to make another move on rates until the August Board meeting, at which time some analysts are predicting that a cut of 50 basis points is completely possible. This is due to the Bank's growth forecasts for 2009 and 2010 depicting an economy which will experience its growth low point in the first three quarters of 2009, however the pace of recovery will be well below trend and weaker than is usually recorded as an economy comes out of recession. What that means is that the RBA would see few risks in over stimulating the market and further to that, the Bank would be mindful of downside risks given the tentative pace of recovery.
Whilst for the likes of us here at Century 21, we view the rate cuts in terms of real estate and the property market, just as many homeowners do, there are of course other significant factors at play when it comes to the current cash rate. For example, if the national unemployment rate passes 8% it would be extraordinary for the RBA to sit by and not be seen to be doing something to boost confidence levels.
If the deterioration of the Australian labour market continues, it will be apparent by August, which is why many analysts are predicting the next rate cut to occur then. But until then, those of us invested in property can still continue to benefit from extremely low rates, and breathe a little bit easier when it comes to mortgage repayments.