RBA cuts official interest rates to a historic low of 0.5%
The Reserve Bank of Australia (RBA) has slashed interest rates to an unprecedented low of 0.5 per cent. Read below to find out why this has happened, what it means for the Australian property market and what does the future landscape look like.
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RBA cuts official interest rates to a historic low of 0.5%.
Australia’s Central Bank, the Reserve Bank of Australia (RBA) has today slashed interest rates by 25 basis points to an unprecedented low of 0.5 per cent.
Why has the rate been cut this time?
Internally, the latest jobs report showed unemployment had increased to 5.3% in January and large parts of Australia are still reeling from the devastating effects of the recent bushfire crisis. Whilst these internal factors will have impacted the decision, it’s believed the Coronavirus crisis has been the biggest influence.
Globally, the virus outbreak has caused havoc for China, Australia’s most important trade partner. Since the outbreak, Chinese business activity (production, imports and exports) has slowed, having a devastating impact on share markets and confidence around the globe.
Governor of the RBA Philip Lowe said “The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending,”
What does this mean for the Australian Property Market?
With a direct relationship between the cash rate, housing construction and property prices. A low interest rate indicates that more people are likely to borrow, and as a result, more people will look to build and buy property.
With low interest rates, the property and construction sectors are expected to continue to boost the Australian economy, generating more revenue and importantly, more jobs.
With increased borrowing leading to increased demand in the property market, house prices are expected to remain strong, at least in the short-term. However, this is likely to be challenged should Coronavirus be officially announced as a global pandemic.
The future landscape
In its official statement, the Reserve Bank of Australia said: “GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be. Once the coronavirus is contained, the Australian economy is expected to return to an improving trend. This outlook is supported by the low level of interest rates, high levels of spending on infrastructure, the lower exchange rate, a positive outlook for the resources sector and expected recoveries in residential construction and household consumption. The Australian Government has also indicated that it will assist areas of the economy most affected by the coronavirus.”
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