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AU RBA cuts the cash rate to 53-year-low of 2.75%

Property Here - Tuesday, May 07, 2013

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The Reserve Bank has cut the cash rate by 25 basis points to 2.75% today, the lowest setting for the benchmark rate in 53 years.

The previous lowest cash rate was 2.89% in January 1960 based on proxy historical RBA data going back to 1959. 

The cash rate is now lower than it was post-GFC, when the RBA took emergency steps to encourage borrowing and spending with big 100 basis point rate cuts.

Today, ABS preliminary data had capital city house prices up just 0.1% over the March quarter following a strong December quarter, revised up to a 2% gain. 

Yesterday, retail sales fell by an unexpected 0.4% over March after a 1.3% rise in February. 

The housing and retail sectors are two of the key non-mining sectors that the RBA will expect to pick up some of the slack from the resources investment approaching its peak. 

RP Data national research director Tim Lawless says while the RBA would be “reasonably comfortable with the pace of the housing market recovery” what may have been most concerning to the RBA is the “pace of dwelling construction and consumer appetite for newly constructed homes”. 

“Dwelling approvals and commencements remains weak and although new home sales have improved, according to the HIA, the number sold remains historically low. 

“If we are to see the construction sector pick up where the mining boom is leaving off, lower interest rates may be the catalyst that is required,” he said.

Alex Parsons, CEO of financial comparison website RateCity.com.au, says today’s cash rate drop is great news for variable borrowers if lenders pass on the full cut to their customers.

"With today’s cut making it the seventh since November 2011, variable rate borrowers, which are the majority of the home loan market, are paying much more interest compared to the cash rate.

"In fact, the gap between the benchmark standard variable rate – the average of the major four banks – and the cash rate has almost doubled (88 percent) over the past decade. The benchmark standard variable rate is currently 6.42 percent. While this is the lowest level since December 2009, it is still 3.42 percentage points above the cash rate and the biggest spread we’ve ever seen," he says.