RBA cuts interest rates at its August 2016 meeting

RBA cuts interest rates at its August 2016 meeting
RBA cuts interest rates at its August 2016 meeting

The RBA cash rate decision came out at 2.30 today with the historic decision to further cut rates to 1.5%.

"At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.50 per cent, effective 3 August 2016."

The Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

The bank board noted supervisory measures have strengthened lending standards in the housing market.

"Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments.

"The most recent information suggests that dwelling prices have been rising only moderately over the course of this year, with considerable supply of apartments scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.

"Growth in lending for housing purposes has slowed a little this year.

"All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished."  

CoreLogic head of research Tim Lawless said a slowdown in dwelling value growth may have made it easier for the RBA to cut the cash rate for the second time this year, however the primary reason for rates moving lower was likely to be the low inflation reading over the June quarter and the stubborn strength of the Aussie dollar.  

"CoreLogic’s hedonic home value index reported a 6.1 percent annual rise in capital city dwelling values over the year ending July, which is the lowest rate of annual growth since September 2013 and substantially lower than a year ago when dwelling values were rising at almost double the pace," he said.

"The annual trend of growth in Sydney has more than halved over the past 12 months, falling from 18.4 percent in July last year to 9.1 percent over the past twelve months.

"Presuming the cash rate cut is passed on to mortgage rates, there is likely to be a renewed level of scrutiny on the housing market, with policy makers wary of a reversal in the slowing housing market growth trend.

"A resurgence of growth could trigger a new round of regulation from APRA aimed at limiting growth in investment lending and/or tightening loan to valuation ratio requirements for lenders.  The latest interest decision is likely to keep a base level of demand across the housing market, however other factors such as affordability constraints, higher supply levels, tighter lending conditions and weak rental markets are likely to see growth conditions continue moderating back to more sustainable levels."

LJ Hooker chief executive officer Grant Harrod said the shortage of stock had underpinned price growth in the NSW and Victorian capitals over the past quarter with CoreLogic reporting Sydney’s median house price increased 5.6 percent in the quarter to June, while Melbourne rose 3.5 percent.

“There’s a sharp lack of stock on the East Coast. Auction results in Sydney and Melbourne have been consistently north of 70 per cent showing the buyer demand is still very healthy,” he said.

“We’re now a month away from the peak selling season and the RBA’s move will motivate buyers even further. Most pundits thought Sydney and Melbourne’s price growth would slow over the year – especially over winter. But very few anticipated the levels of new stock would be so low.

“There’s plenty of room in the market for sellers wanting to list now; more listings will actually bring greater levels of sustainability to the market."

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