RBA cuts cash rate again

Stock image.
Stock image.

THE Reserve Bank of Australia has cut the cash rate to a fresh record low of 1.0 per cent, reducing the cost of borrowing for two months in a row for the first time since 2012.

The market had largely priced in a second straight 0.25 percentage point cut after RBA Governor Philip Lowe suggested the June reduction would not be enough on its own to boost economic growth.

The last cut came a day before the release of another disappointing quarterly GDP result and was the first move in any direction since August 2016.

RBA cuts cash rate to new record low

Interest rate cut a win for struggling WA market

Governor of the Reserve Bank of Australia Dr Philip Lowe. Picture: AAP

Dr Lowe on Tuesday noted the impact on Australia of US-the China trade tariff disputes.

“The uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside,” Dr Lowe said.

Dr Lowe last month denied June’s decision to cut was a response to a deteriorating economic outlook since the RBA’s May meeting, but also noted that a 5.2 per cent unemployment rate and stubbornly low GDP growth indicate that few inroads are being made into the economy’s spare capacity.

Figures out last month showed Australia’s economy grew by an underwhelming 0.4 per cent during the March quarter as household spending weakened and the property construction downturn rolled on.

“This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” Dr Lowe said.

Lenders across the market trimmed mortgage rates after the RBA’s last move and are likely to do so again, although only two of the four big banks passed on the full June rate cut to customers.

Product comparison site Canstar says banks have, since 2011, passed on only 50 per cent of rate cuts in full.

But a lower cash rate also means a lower return for savers, with interest rates barely keeping pace with inflation.

The Aussie dollar immediately dipped from 69.79 US cents to 69.70 US cents on the announcement before climbing back to 69.81 US cents by 1435 AEST.

The real estate and building industries have welcomed the rate cut.

Real Estate Institute of Australia president Adrian Kelly said it was a major boost to housing affordability, with first-home buyers to benefit the most.

“Subject to the banks passing on the cuts in full this means that for each $100k borrowed annual payments decrease by $500,” he said.

“For a first home buyer, who in the March quarter of 2019 had an average loan size of $338k this means a saving of $140 per month.”

Urban Development Institute of Australia chief executive Tanya Steinbeck said the rate cut was another step towards a property market recovery in WA as subdued conditions continue to take their toll.

“This cut is a welcome move by the RBA to further support employment growth,” she said.

“We hope this will also increase overall consumer confidence and lead more people to take that step into purchasing a property given the opportunities that are currently available.”

“The health of the property market and subsequently the property industry itself, is critical to the broader state economy.”

Master Builders executive director Jon Gelavis said the rate cut came at the perfect time to take effect alongside the WA Government’s housing stimulus via changes to Keystart income levels.

He urged the major banks to pass on the cut fully and immediately, saying builders were under stress due to the WA housing slump and the opportunity to get the market moving again had never been greater.

“The WA building and construction sector employs around 119,000 people and includes more than 40,000 small businesses so we urge lenders to pass today’s rate cut on to them fully and without delay,” he said.

“This will assist those who are doing it tough, support economic growth and help end the housing slump.”