RBA cuts rates to record low 1.25%

The Reserve Bank of Australia (RBA) has today cut the cash rate by 25 basis points to a new record low 1.25%. This marks the first move in the official interest rate since August 2016.

The RBA noted that the cut was delivered to help “support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.”

Treasurer Josh Frydenberg yesterday advised executives at the nation’s big four banks that the government expects them to pass on in full any cash rate cut from the Reserve Bank.

If Banks do pass on the full rate cut, a typical investor with a $400,000, 30-year investment loan will see their mortgage repayments fall by $57/month or $684/year. (Assuming current interest rate of 4%).

RBA cash rates 1991- present

Boost for the markets

Today’s rate cut is expected to bolster property markets, with the RBA noting improvements to auction clearance rates in certain markets, which have already taken place.

The decision to cut rates will likely continue to support the property market moving forward and help to stimulate continued economic, jobs and wages growth.

The RBA expects that the national economy would grow by 2.75% in 2019 and 2020.

Much of the growth would be underpinned by record levels of infrastructure investment as well as positive movements in the mining sector.

In terms of employment, the RBA noted that jobs growth has been robust over the past year, with labour force participation noticeably increasing. At the same time, the unemployment rate had been trending at 5% consistently for some months, however edged slightly higher to 5.2% in April 2019.

The rate cut should help to see a pickup in wages growth which has begun to improve, albeit slowly.

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