RBA cut interest rates at March meeting to record low 0.5 per cent

RBA cut interest rates at March meeting to record low 0.5 per cent
Joel RobinsonDecember 7, 2020

The RBA have cut the official cash rate to a historic low 0.5 per cent at its meeting today.

The cuts come after a turbulent week across the globe, with the Coronavirus wiping billions off global markets.

Graham Cooke, insights manager at Finder, said the cut may not seem unprecedented now, but a few days ago it did.

"What a difference a week makes,” Cooke said.

"To put in perspective how improbable this all is, last Friday, oddsmakers placed the chance of a 25-basis-point cut as less likely than when 15-year-old Coco Gauff beat Serena Williams in the first round at Wimbledon in 2019", Cooke said.

“Nobody saw this coming,” Cooke added.

AMP Capital's chief economist Shane Oliver predicted the cut, and he doesn't believe it will be the only cut in 2020.

“The coronavirus outbreak coming on the back of the bushfires is likely to see the economy go backwards this quarter which in turn is likely to push unemployment up further after the rise to 5.3% seen in January.

“Growth should rebound in the March quarter but given…we are so far from full employment and the inflation target, the RBA is likely to cut the cash rate again in the months ahead," Oliver said.

RBA cut interest rates at March meeting to record low 0.5 per cent

CoreLogic's head of research Tim Lawless said the result was widely expected considering the downside impact of coronavirus on the Australian economy, as well as household sentiment.

"The cut also comes as inflation remains well below the RBA target range, labour markets hold plenty of slack with an underemployment rate of 8.5 per cent, and wages growth tracks at a near record low of 2.2 per cent.

"Lower interest rates would normally be a catalyst for an acceleration in housing demand and value growth, however there is less certainty that this will add fuel to the housing market in the current economic climate. 

"This is partly because the latest rate cut is unlikely to be fully passed on to mortgage rates. 

Lawless says a low cash rate, coupled with concerns around the global spread of coronavirus, has the potential to spook consumers and drag confidence lower.

"Buying or selling a home is a high commitment decision; if consumer confidence slips further from already low levels, we could see Australian households sit on their hands rather than decide to buy or sell, which would weigh on market activity. 

"Since the rate cutting cycle began in June last year, housing markets have responded swiftly and positively.

"The CoreLogic national home value index increased 7.9% from June to the end of February. 

"Considering the housing sector has been one of the few positive areas of the Australian economy, a slowdown in housing market conditions could add to the downwards pressure on economic growth that is expected over coming months as key industry sectors such as tourism, education and commodity exports are impacted by the coronavirus outbreak.

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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