Cash Rate Unchanged at 0.25%

During the Reserve Bank of Australia’s board meeting earlier this week, the decision was made to hold the cash rate at the record low of 0.25% and it is likely to remain unchanged until at least 2023.

Many people are asking why the cash rate remains unchanged, and what impact this decision will have on the property market?

The RBA has previously stated that the cash rate won’t move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment (implying an unemployment rate of about 4.5%). RBA have forecasted that unemployment is likely to peak around 10% in June and inflation could turn negative over the coming quarters. Tim Lawless from CoreLogic affirms that it is safe to assume that neither the unemployment rate or inflation will be in a position to trigger an increase in the cash rate target for at least the next couple of years.

The plus side of such a low cash rate is extremely low mortgage rates. Investor variable mortgage rates are around the 3% range, with ANZ currently offering a rate of 2.99%. Average variable mortgage rates for owner-occupiers are below 3% with NAB offering a rate of 2.84% and Westpac offering a rate of 2.49%. Fixed-term mortgage rates are even lower, with both NAB and Westpac offering a rate of 2.39%. This low cost of debt is a key factor that will help to support housing demand as the economy emerges from the COVID-19 hibernation period.

Consumer confidence has undoubtedly taken a hit in the property market meaning there has been a reduction in sales activity. This drop in sales activity is more than likely to be followed by a swift rebound once COVID-19 has been contained. Naturally, many Australians are unsure about their household finances, employment prospects, and the short to medium term expectations of economic conditions, although we are seeing many people taking advantage of cheap rates. Over the past 2 weeks, buying activity has increased and we expect activity to continue to ramp up over the coming months. 

As COVID-19 cases begin to level out much more efficiently and effectively than expected, we are already seeing some states such as New South Wales and Queensland lifting social distancing policies which will likely see economic and property market conditions improving much sooner than anticipated.