The Reserve Bank surprised today by announcing a cut in the official interest rate by 0.25 percent to a new record low of 2.75 percent. Today’s announcement followed three months of rates on hold with the last cut of 0.25 percent in December last year.
Rates have now fallen by a full 2 percent since the beginning of the current easing cycle in November 2011.
Action by the Reserve Bank today indicates concerns by the Bank over the recent performance of the economy, particularly in regard to rising unemployment and declining national income.
Some sections of the Australian economy are clearly still in need of further stimulus with the Reserve Bank choosing to act while inflationary pressures remain benign.
Housing markets however have been a beneficiary of low interest rates this year with forward indicators such as auction clearance rates and housing loans clearly ahead of last year results.
“A further cut in interest rates, when and if passed on by the banks, will provide continued stimulus to strengthening housing markets through autumn and into winter”, says Dr Andrew Wilson, Senior Economist for Australian Property Monitors.
“Lower interest rates and rising home buyer confidence are set to continue to generate house price growth although the performance of local economies remains the key as indicated by today’s interest rate decision”.