RBA cuts rates again at the July meeting

RBA cuts rates again at the July meeting
RBA cuts rates again at the July meeting

The RBA have decided to cut rates by 25 basis points for the second time in as many months, bringing the cash rate to a historic low one percent.

The RBA had left the cash rate on hold for nearly three years at a record low 1.5% before cutting it to 1.25% last month.

It's the first time the RBA have cut rates in back to back months for the first time in over a decade.

It was 2008 when it was slashed at five consecutive meetings from 7.25% in August to 3.25% in February of 2009.

CoreLogic research analyst Cameron Kusher says the prospect of another interest rate cut had risen over June. 

"The likelihood of an interest rate cut had been rising throughout June, particularly since the weak GDP reading in early June and following RBA Governor Phil Lowe’s speech which indicated that a single 25 basis point cut to rates (which was delivered last month) was unlikely to shift the path that we are on," Kusher said.

"In fact, the ongoing slowing of the rate of decline in dwelling values throughout 2019 and the recent uptick in Sydney and Melbourne dwelling values, would likely have reduced concerns of further wealth erosion from housing. 

"Furthermore, the 25 basis point cut in June along with the cut today and the likelihood of reduced serviceability buffers from APRA are likely to be further positives for the housing market and encourage an ongoing gradual levelling in the housing downturn nationally. 

"Despite these positives, the introduction of the Banking Code of Conduct and the expansion of Comprehensive Credit Reporting from the beginning of July will ensure that although taking out a mortgage may become a little easier, the scrutiny on loan applications will remain significantly greater than it has been in the past. 

"Given this, the expectation is that a recovery in housing market conditions is likely to be slow and gradual despite lower interest rates. 

"No doubt attention will now turn to mortgage rates and how much of the cash rate cut will be passed through to mortgages.

"Our expectation is that banks will be holding back on passing on the full cut as they seek to balance out mortgage rates with deposit rates and protect net interest margins. 

Over a third of experts and economists in Finder's RBA survey predicted the July cut.

Graham Cooke, insights manager at Finder, said last month’s cut – the first change to the cash rate in almost three years – was perhaps too small to make the desired impact.

“The objective is to lower unemployment, boost wage growth and push inflation back to target. It’s clear that one cut isn’t enough.

“Frankly, two cuts might not be either, but it’s a step in the right direction and it’s great news for homeowners. It’s two down and maybe one or two more to go.

“On an average mortgage, if your bank passes on both rate cuts in full – that is a 50 basis point reduction – you could be saving almost $42,000 over 30-years.”


Mortgage Choice's Jacqueline Dearle predicted the cut and said, should they be passed on, they’ll give the property market a nudge in the right direction.
“[A cut will be] great for first home buyers and property investors but the fall in official interest rates will not be so welcome to those Australians with cash savings in the banks, who may see their returns diminish if the banks trim back their rates further from the current average rate of 1.4%,” Dearle said. 

Joel Robinson

Joel Robinson

Joel Robinson is a property journalist based in Sydney. Joel has been writing about the residential real estate market for the last five years, specializing in market trends and the economics and finance behind buying and selling real estate.

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