The Australian economy and residential sector will receive a boost following a Reserve Bank decision to cut rates to new record lows – albeit with not all banks having passed on the full rate reduction to their customers.
At its meting on Tuesday, the Reserve Bank of Australia reduced the official interest rate by 0.25 basis points from 1.5 percent to 1.25 percent.
Response from banks was mixed.
Whilst both the Commonwealth and NAB passed on the full rate cut, ANZ decreased its home loan rates by only 0.18 percent whilst Westpac reduced rates by 0.35 percent for investors but only 0.20 percent for owner occupier home loan customers.
In a statement, the Reserve Bank said the decision to reduce rates was taken to support employment growth and provide greater confidence that inflation will be consistent with the medium term target.
Whilst the outlook for the global economy remains reasonable, the bank said downside risks stemming from trade disputes have increased.
In Australia, the RBA expects says its view that the local economy will grow by around 2.75 percent in 2019 and 2020 remains unchanged.
On housing, the RBA said the market remained soft, credit conditions have tightened and the demand for credit from investors has been subdued – albeit with the rate of decline slowing and auction clearance rates on the rise.
In a statement, RBA Governor Philip Lowe said the decision would support the economy and make further inroads into meeting its inflation target of between two and three percent.
“Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy,” Lowe said.
“It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.”
CoreLogic Head of Research Tim Lawless said the lower rates combined with other factors such as renewed confidence following the federal election and an expected easing in APRA requirements regarding loan serviceability are likely to help housing market activity.
With credit policies remaining tight, however, he said the stimulus to housing is unlikely to be as strong as with previous easing cycles.
“Overall, the latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values, but we aren’t expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate,” Lawless said.