RBA cuts cash rate to 2 per cent

The-RBA-has-made-a-landmark-decision-to-cut-the-cash-rate-to-2-per-cent-_157_6011269_0_14100828_300For those speculating on which direction interest rates were to head in the coming months, the Reserve Bank of Australia has finally put the discussion to bed. At its May 5 board meeting, the bank followed through on its previous hints and slashed the official cash rate by a further 25 basis points. Effective on May 6, this brings the rate to a historic low of 2 per cent – and the impact on the property market will likely be widely felt.

Governor Glenn Stevens pointed out that the record low interest rates are providing an important pillar of support for the Australian economy, which cannot be underestimated. In particular, encouraging levels of household demand and employment have enabled the bank to pursue this decision, Mr Stevens said.

This cut may come as a surprise to some observers, particularly those who have been cautiously watching the Sydney property market. Recent figures from CoreLogic RP Data show that home prices have risen an astonishing 14.5 per cent over the year to March. Mr Stevens did point to rapidly rising real estate values in Sydney as an area of concern, but once more reiterated that the bank – in partnership with the Australian Prudential Regulation Authority – would be keeping a close eye on developments.

Real Estate Institute of New South Wales President Malcolm Gunning said the pressure had been building for another cut for some time and this result would likely see further growth in the home lending sector.

“Today is historic for all mortgage holders and those seeking to take out a mortgage in the future,” Mr Gunning said in an April 5 statement.

“However, these unique conditions should be approached with caution and we cannot stress enough the importance of carefully reviewing your financial situation before committing.”

Only time will tell whether financial institutions pass this cut on to their customers – and homeowners will likely be waiting with bated breath.

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