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RBA moves on rates

The Reserve Bank of Australia (RBA) has reduced the official cash rate.

The rate cut, 25 basis points, takes the official cash rate to the all-time low of three per cent.

The rate cut means the Reserve Bank has now slashed 125 basis points from the cash rate over the last 12 months.

While the official rate now sits at the historic low of three per cent, economists weren’t surprised by the rate cut and believe the RBA could tighten the cash rate further still in the New Year.

ANZ’s head of Australian economics and property research, Ivan Colhoun, said for many parts of the economy, interest rates remain high given the subdued level of business conditions.

“This is particularly true at a time when the Australian dollar has remained elevated,” he said. “Further monetary easing is necessary to assist the economy in its transition towards a lower dependence on mining investment growth.

“We continue to expect the [Reserve] Bank to maintain a strong easing bias in 2013.”

RP Data senior research analyst, Cameron Kusher, said from a housing market perspective, he assumes the RBA is reasonably comfortable with the current performance of the market, “which suggests it has been the collection of other weaker economic indicators that have compelled the RBA to cut interest rates”.

“Dwelling values are 2.1 per cent higher than what they were at the end of May this year and there has been a modest uptick in transaction volumes, which suggests that consumers are slowly responding to the previous rate cuts.

“The 25 basis point rate cut in October is still working its way through the data, however the RBA clearly felt that the overall economy required further stimulus and, as a result, has chosen to reduce official interest rates. Overall, the housing and construction sectors are showing minor signs of improvement so it is other factors which have convinced them to cut rates today.”

Source:  Real Estate Business

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