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Back-to-back interest rate cut on the cards

02 Mar 2015 - 4C Realty

Home owners enjoying the recent interest rate decrease may soon have another reason to celebrate. Finance gurus are tipping another rate cut may be on the cards in March.

Last month the Reserve Bank of Australia reduced interest rates to 2.25% in a move predicted by some, but not all, economists.

AMP Capital Head of Investment Strategy and Chief Economist Dr Shane Oliver says subdued economic growth makes another rate cut highly likely.

“Historically we have seen rate changes in pairs,” he says.

“Sometimes the RBA wait – in 2013 there was a cut in May and then August.

“So they may wait to see how the property market responds to the latest adjustment or they may want to get it over with.”

Low inflation drives RBA

The predicted downward trend in interest rates is influenced by long-term low inflation.

“Inflation as measured by the CPI has been affected by movements in energy prices and government policy changes, but even aside from these effects, inflation is low and appears likely to remain so,” he said.

“At its meeting in February the board considered that this revised assessment – that is, sub-trend growth for longer, a higher peak in the unemployment rate, slightly lower inflation – warranted consideration of some further adjustment to monetary policy, after a fairly long period during which the cash rate had remained steady.”

Strong property price increases in Sydney, solid growth in Melbourne and mixed price patterns in other states had not swayed the board to cut rates, Stevens said.

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Homeowners could be treated to another interest rate cut from the RBA this month

Hot competition in lending market

Credit advisor and author of Escape the Rental Trap Tim Boyle says overseas factors also point to a local rate drop.

“I think rates are only going to go down because of what’s happening around the world – the US keep threatening to put rates up but haven’t and in Europe they’re still going down,” he says.

“So it’s hard to be optimistic about the economy.”

February’s rate adjustment has increased already competitive conditions in the lending market with some variable loans at just 3.99%, Boyle says.

“The lending market is more competitive than ever,” he says.

“There are rates coming out that are unbelievable.”

Record low rates have already driven some homeowners to fix interest rates, but Boyle says variable rates are proving worth holding out for.

“Hold tight and enjoy the market decreases,” he says.

“I wouldn’t think about fixing for at least six months.”

The above is an extract from http://www.realestate.com.au/blog/back-back-interest-rate-cut-cards/

4C Realty

Caroline He