Should We Expect Another Cash Rate Cut?

July 20, 2016 |
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The official cash rate (OCR) has been low for a while now, encouraging people across the country to think carefully about whether now is the right time to buy. Many banks decided to mirror the reduction by lowering rates on their own standard variable rate products, enticing first-time buyers into the market.

As we move past the mid-point of the year, many real estate experts have turned their attention to where the OCR is heading. Will it remain at 1.75 per cent for the rest of the year? Is the Reserve Bank of Australia (RBA) likely to introduce a further cut before 2016 is through?

Nobody really knows what’s in store for the cash rate.

Why the cash rate was reduced

The RBA takes a number of different factors into account when deciding what the future holds for the OCR. Back in May last year, it expressed concerns that the Australian economy wasn’t quite moving at the pace it had hoped for, leading to a 0.25 per cent reduction. This brought the OCR down to 2 per cent – the lowest rate in history.

Fast-forward to May 2016 and a similar situation arose again. RBA Governor Glenn Stevens explained some of the risks facing the economy and announced a further cut, bringing the OCR down to a new historic low of 1.75 per cent.

The good news is that this time round, many lenders chose to pass down this cut to customers. In theory, this meant that anyone hoping to buy a house could expect lower rates from their lender. Commonwealth Bank explained that just a 0.25 per cent reduction could save homeowners as much as $55 a month on an average mortgage of $350,000

Can we expect any more rate cuts?

Nobody really knows what’s in store for the cash rate, but one thing that is certain is that the economy hasn’t seen much improvement over the past few months. The ripple effect from Brexit is still making its way across the globe, plus there’s the political uncertainty that’s faced Australia over the past few days.

Risks posed by the official cash rate are under scrutiny.

The Housing Industry Association is fairly sure there will be another cut to the OCR in the next few months, which could deliver further benefits to buyers of Sydney property.

“Looking ahead, the current political dynamic increases the prospect of a loss in confidence and economic activity in Australia in 2016-17,” said HIA Chief Economist Harley Dale.

“Hence the reason for the increased probability of a rate cut occurring over the August to December period.”

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