Southern Highlands Blog

Australia's central bank, the Reserve Bank of Australia (RBA), pulled the monetary policy levers once again in early August, chopping the cash rate by 25 basis points to 1.5%. The RBA last cut interest rates in May.  

The RBA stated that difficult conditions in a number of emerging market economies contributed to its decision to cut the official cash rate. “Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China’s growth appears to be moderating,” said RBA Governor Glenn Stevens via his monetary policy communique issued after the announcement. He also noted, “Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.”

Housing markets will continue to benefit from lower mortgage rates with robust buyer activity translating into recent solid price growth in most capitals, according to Andrew Wilson, Domain Group chief economist. “Auction activity has also increased in the majority of capital cities over July. Although rates have been cut again this month, the likelihood remains the bank will follow-up with another reduction in the near-term, particularly if the labour market deteriorates and inflation continues to decline.”

Angus Raine, Executive Chairman of Raine & Horne, said the RBA’s decision will set up Australian real estate for a bumper traditional Spring selling market. “It usually takes a couple of months for monetary policy decisions to flow through to the economy, which makes the timing of this cut perfect for Spring selling markets,” said Angus.

The four major banks were swift to respond to the cut but only passed on between .10 and .14% of the .25% reduction.