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RBA cuts rates: should we be scared or pleased?

The decision by the Reserve Bank of Australia to cut the official cash rate by 25 basis points to the new historical low of 1.75% should be met with equal amounts of happiness and concern, Mortgage Choice chief executive officer John Flavell has said.


The decision by the Reserve Bank of Australia to cut the official cash rate by 25 basis points to the new historical low of 1.75% should be met with equal amounts of happiness and concern, Mortgage Choice chief executive officer John Flavell has said.

According to Mr Flavell, the decision to trim the cash rate doesn't just help to reduce home loan interest rates, it also points to a broader problem with the Australian economy.

“While yesterday's rate cut should be welcomed, the reasons behind the rate cut cannot and should not be ignored,” he said.

“According to a statement by the Reserve Bank of Australia, the Australian economy is currently going through a delicate rebalancing act.

“Given that recent inflation data was unexpectedly low, the Board felt the only way to rectify the issue and achieve sustainable growth in the Australian economy was through a cash rate cut.  

“With that in mind, it is clear that the Reserve Bank believes the Australian economy is in a spot of trouble. Which begs the question, should Australians be concerned?

“I personally believe the answer is no.

“Yes, the Australian economy is currently struggling to rebalance following the end of the mining investment boom, but that should not give us cause for concern.

“Data from the Australian Bureau of Statistics shows unemployment is tracking steadily lower, which is a good sign. Further, the National Australia Bank Business Survey continues to point to a very favourable business environment for Australian firms.

“Finally, in the hours following the Reserve Bank's cash rate cut, three of the big four decided to pass on the rate cut in full to their customers.

“While this was largely expected given that Australia's lenders have come under fire for moving out of cycle with the Reserve Bank in the past, the rate cuts should help to improve consumer sentiment and property demand.  

 “The rate cuts made by Australia's lenders will help to make the cost of borrowing more affordable than ever before. This should keep heat in the property market and encourage more borrowers to take advantage of the low rate environment.”

Posted in: Interest rates

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