The Reserve Bank has cut the official interest rate to an unprecedented low 0.5 per cent, a move that’s expected to see housing demand sizzle.
RBA Governor Philip Lowe made the move as Australian markets swung dramatically in favour of a rate cut over growing fears over the global economic impact of coronavirus.
“At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak,” Mr Lowe said.
New low interest rates are expected to see housing market demand grow even further.
“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected.”
The Australian market swing in sentiment was sharp, going from 82 per cent expectation of a hold at 0.75 per cent on Friday to the ASX 30 Day Interbank Cash Rate Futures March 2020 contract trading at 99.490 on Monday – “indicating a 100 per cent expectation of an interest rate decrease to 0.50 per cent”.
HOW THE MARKET SWUNG:
Feb. 4 – RBA left the official cash rate unchanged at 0.75 per cent.
20 Feb. 91% no cut
21 Feb. 93% no cut
24 Feb. 91% no cut
25 Feb. 91% no cut
26 Feb. 89% no cut
27 Feb. 89% no cut
28 Feb. 82% no cut
2 Mar 100% CUT
Pete Wargent, co-founder of AllenWargent Property Buyers, said if the market was pricing something 100 per cent, it was very difficult for the RBA to not move.
“The main thing that’s changed is the global economy there’s just been a massive demand shock related to coronavirus,” he said. “It’s not the virus itself, it’s more the second order impact, particularly factory activity in China has just dropped off a cliff.” Veronica Morgan on how to be the highest bidder
“If that’s replicated around other countries like Korea and other parts of Europe then it’s a real jolt to global demand and growth, so markets moved very, very quickly.”
He said the US was also widely expected to start dropping rates again.
The question now, he said, was how much to those cuts would be passed on to consumers and businesses.
“What happens after the cut, how much is passed on by major banks remains to be seen, I suspect banks won’t pass on all the cut, because there’s been a lot of pressure on margins. I expect banks will try to hold on to some of the cuts. Generally mortgage rates for new customers are very, very low. It’s very, very cheap money.”
He said the move could be expected to lift housing demand further.
“Historically rate cuts have always been followed by more investors coming into property, I guess it will be the same, I guess what the RBA would like to see is more consumption and business confidence increasing.”
Sophie Foster
