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Cash rate cut gives homeowners a reason to smile

Homeowners have been given a reason to celebrate, with the Reserve bank of Australia trimming the official cash rate to the new historical low of just 2%.


Homeowners have been given a reason to celebrate, with the Reserve bank of Australia trimming the official cash rate to the new historical low of just 2%.

At its Board meeting earlier today, the Reserve Bank trimmed 25 basis points from the cash rate – marking the second cash rate cut this year.

This rate cut will help to slice approximately $44 off the monthly cost of servicing a $300,000, 30-year principal and interest mortgage*.

Of course, it is not just home owners who have a reason to cheer. The latest rate cut will also help to give home buyers a leg up as the cost of borrowing will become more affordable than ever.

According to the Reserve Bank, sluggish consumer sentiment teamed with a less than favorable outlook for both the domestic and global economy pushed the Board to cut the cash rate.

The latest Westpac Melbourne Institute of Consumer Sentiment Index found confidence fell 3.2% in April to 96.2.

Westpac's chief economist Bill Evans said while many factors contributed towards the drop in sentiment, the fact that the cash rate was not cut in April was a major sore point for Australians.

“Markets gave a probability of around 75% to the Reserve Bank cutting the overnight cash rate in April. Failure to deliver on expectations, including widespread media speculation, would have hindered confidence,” Mr Evans said.

In addition to the fall in consumer sentiment, the Australian dollar has started to surge higher over the past week.

On Thursday last week, the Australian dollar touched US80c, a level the Reserve Bank governor Glenn Stevens has previously said is well above its fundamental level.

When the Australian dollar rises, so too do the price of our exports, which makes Australian businesses less competitive.

With the mining boom diminishing thanks to China's economic slowdown, it is important for other Australian sectors and industries to grow and prosper.

The Reserve Bank of Australia would be hopeful that this latest rate cut gives the country's other industries the boost they need.

In the meantime however, we will just have to ‘watch this space'. 

* Calculation made using a standard variable rate of 4.15% (This takes into account a 25 basis point rate cut from 4.5%).
Posted in: Interest rates

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