The Reserve Bank cuts the cash rate to 1.75%

May 03, 2016
Melinda Halloran

After a year of rates at 2%, the Reserve Bank had to move sooner or later. But with the May cash rate decision coming just hours ahead of the release of the federal budget, many economists doubted whether the Reserve Bank would rock the boat this month.

The decision to cut rates was sparked by low inflation, which has been on the Board’s radar for some months now. The target for inflation is 2.5–3%, but recent data was far lower than expected. This was the push the Board needed to move from the already low rate of 2%.

“These results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast,” said Governor Glenn Stevens about inflation figures and the factors behind the decision.  

With house prices in Sydney and Melbourne only now starting to ease, the Board has been reluctant to drop rates due to concern that demand would increase again, pushing prices up. Today, however, Governor Stevens explained that this risk is a lot lower than it was a year ago. Instead, the intention of the decision is to combat the impact of the Australian dollar and inflation.

It is still not clear whether lenders will pass on the full cut. Many of the major banks have been citing increased funding costs as an issue, so we will have to wait and see what impact this will have on your monthly budget.

Unlike Sydney and Melbourne, the Brisbane property market has been growing at a steady and sustainable rate. This latest decision is likely to see the market pick up slightly, but shouldn’t have a dramatic impact on growth, which is forecast at between 3–4%.

Even if your lender doesn’t pass on the full cut, you may be able to find a better deal by refinancing. A lot of borrowers look at refinancing after a rate cut, and this increases competition in the market, giving you greater bargaining power. 

The Brisbane property market stats you need to know

  • Official cash rate: 1.75%
  • Brisbane median house sale price (March): $675,000
  • Brisbane median unit sale price (March): $475,000
  • Auction clearance rate: 48%
  • Best available variable interest rate: 3.98%
  • Best available fixed interest rate: 3.99% (for a three-year term)

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Posted in: Interest rates

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