THE Reserve Bank has reduced interest rates by 25 basis points as forecast by the market, to 3.50%, its lowest level in almost three years.
The interest rate was 3.50% in November 2009. This is the second consecutive monthly rate cut, following the 50bps cut last month.
ANZ Bank economists Ivan Colhoun and Justin Fabo have forecast a further 50bps of rate cuts over the remainder of 2012 to 3.0%.
“There was perhaps a reminder that the Bank is not going to pre-empt European developments (ie that the market should not pre-empt 50bps cuts), with a reference to the Board having previously noted that Europe would remain a potential source of adverse shocks. It would remain our expectation that the Bank would prefer to move in 25bp increments, barring Europe moving into an actual crisis situation or funding pressures being a relevant consideration,” they said.
Colliers International research director Mark Courtney said the latest rate cut will have a minimal impact on the real estate sector and further cuts are needed to stimulate the market.
“The reality is that the banks are highly unlikely to pass on the rate cut in full. Consequently, the RBA decision is likely to have only a minimal impact on the real estate sector.
“For a greater impact, additional cuts are still needed. Ideally, the RBA will be looking to reduce the official cash rate by another 25 to 50 basis points over the next few months,” he added.
Courtney said there had been some good news about the housing market recently, with early indications that the worst is over in the sector.
“It would be a bit premature to say there has been a turnaround in the housing market, but there are signs that the largest declines are behind us… It is notable that after rising quite sharply during 2009 and 2010, mortgage delinquencies have since peaked and are now clearly trending downwards.
“Despite these positive signs, conditions within the Australian housing market remain subdued, with heightened concerns over the global economic environment and uneasiness in relation to the domestic labour market conditions impacting sentiment and providing little reason for buyers to enter the market.
“This is precisely the reason why more rate cuts are needed. Another 25 to 50 basis point drop would improve confidence and likely shore up a potential budding recovery in the residential property market,” he continued.
CBRE global research and consulting senior associate director Craig Godber said these rate cuts will come as some relief to home owners and prospective purchasers.
“With activity levels across many of Australia’s residential markets still slow, with some noted exceptions including parts of Sydney’s new unit market, and downward pressures on prices still prevailing, it is likely that these cuts will go some way boost confidence and transaction activity,” he added.
Meanwhile Godber said in the commercial property markets, a general lack of confidence appears to have slowed the number of transactions across both the investment and leasing markets.
“Funding is still being applied selectively, but there is still capital available for the assets that are priced to meet current market expectations,” he concluded.
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