May 03, 2016
Today's RBA decision
The RBA has announced a 0.25% cut to the official cash rate to 1.75% - the first cash rate cut since May 2015. The decision clearly was a tough call, amid lower than expected inflation, low consumer sentiment and a downward trend in house price growth.
Until inflation was reported on the 27th April, many expected the cash rate to be held steady. Inflation – the rate at which the price of goods and services increases – was just 1.3% in the year to March, which is well below expectations of 1.7%.
Reports of falling prices instantly fuelled market expectations of an interest rate cut. This is because when inflation is low or falling (falling inflation is also known as deflation), central banks tend to lower interest rates to encourage borrowing and spending, thus pushing up inflation. Central banks have an ‘inflation target’ where interest rates are used to keep inflation between 2 to 3% per year
Click here for the full Reserve Bank statement.
Will lenders follow??? - that's the big question - they've already been heavily discounting and may feel that they had already priced in a rate cut but I'll be sure to keep you posted.
And there's more...Budget tonight
You can expect the focus to be on personal tax cuts, small business tax breaks and benefits for families. We'll also hear an emphasis on bringing the budget back to surplus. Call me an old cynic, but I'm sure all policies will have been considered with more than one eye on the upcoming federal election!
Last week I received another Mortgage Choice Business Excellence Award for 2016. I couldn't do it without the support of my marvellous clients, so thank you.