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The Reserve Bank of Australia (RBA) has cut the official cash rate to 1.25 per cent, following its monthly monetary policy board meeting.
Most analysts (75 per cent) surveyed by rate comparison website Finder.com.au expected a hold verdict; however, expectations of a cut have intensified over the past few months, particularly off the back of flat inflation data reported by the Australian Bureau of Statistics (ABS) and continued weakness in the housing market.
Senior economist at AMP Capital Shane Oliver was among the 25 per cent of analyst surveyed by Finder that correctly predicted a rate reduction.
“Rate cuts were already on the way thanks to slower economic growth and the downturn in the housing cycle, but weaker than expected underlying inflation in the March quarter argues that the RBA should move sooner rather than later,” he said.
Treasurer of ING Australia Michael Witts agreed: “The inflation print is a concern for the RBA, notwithstanding the positive labour market, the RBA will be seeking to reflate the economy.
“It must be remembered that interest rate changes have a lagged impact on the economy.”
However, economist at Moody’s Analytics Katrina Ell, who predicted a hold decision, said the unemployment rate would need to “consistently head higher” before the RBA makes a monetary policy adjustment.
Head of corporate affairs at Mortgage Choice Jacqueline Dearle expected the RBA to hold off on a cut until after the upcoming federal election.
“History shows us that the RBA does not move the cash rate during an election campaign, so the RBA is likely to hold the cash rate in May,” she said.
“However, a number of factors would make the case for a cut when the board meet again in June or August, should some of the key current factors prevail."
Despite most analysts surveyed by Finder predicting a hold verdict, 84 per cent predicted that the RBA would cut the cash rate by August.
Following the RBA’s announcement, CoreLogic’s head of research, Tim Lawless, questioned whether lenders would pass on the lower funding costs to borrowers and dismissed concerns that a cut will rekindle the housing boom.
“The next question is how much of the cash rate cut will be passed on to mortgages,” he said.
“A reduction in mortgage rates would provide some support for housing demand, however we may not see quite as much stimulus for housing market conditions that we have seen after previous rate cuts.”
He continued: “Generally, housing sentiment remains low and borrower mortgage serviceability is still assessed based on mortgage rates of at least 7 per cent.
“Households who already have a mortgage or prospective borrowers who are able to satisfy lender credit policies are likely to be the biggest winners from lower mortgage rates.”
[Related: Rate cuts not the solution: Westpac CEO]
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