Board cuts cash rate but will mortgages be more affordable?

The Reserve Bank of Australia last week delivered another twenty five basis point cut to the official cash rate, bringing it to a new historic low of 1.00 per cent.

THESE two rate cuts could give the average Australian mortgage holder with a $545,000 home loan an approximate saving of $220 per month, if lenders pass on the cuts in full.

Mortgage Choice Chief Executive Officer Susan Mitchell said that Governor Lowe had previously stated that a single reduction to the cash rate would not have provided sufficient stimulus to the economy and that a second cut would be warranted.

Key economic data has driven the RBA Board to cut the cash rate for a second consecutive month, cementing the RBA’s new stance on monetary policy.

“There was no doubt that a second rate cut was on the cards later this year, however data from the labour market and the national accounts drove the Board to deliver further monetary policy stimulus sooner, rather than later,” Ms Mitchell said.

“When the Bank made the first cut in nearly three years last month, it spurred half of the lenders on our panel to pass on the savings in full to their borrowers.

“However, it remains to be seen whether they take the same approach this time around.

“The RBA has been paying close attention to developments in the labour market with Governor Lowe indicating last month that one of the driving factors behind the RBA’s decision to cut the cash rate was the spare capacity in the labour market – the difference between the unemployment rate and full employment.

“The seasonally adjusted unemployment rate was 5.2 per cent, which is far off the RBA’s desired 4.50 per cent. Monetary policy stimulus could support employment growth and wage growth in the near-term.

“Another factor which drove the Board to cut the cash rate again is the most recent Australian National Accounts for the March quarter,” Ms Mitchell said.

“The ABS data revealed that the economy grew at the slowest pace since 2009 at 0.4 per cent, lowering the annual growth rate to 1.8 per cent.

“Monetary policy stimulus from the RBA, coupled with fiscal stimulus in the form of the Coalition’s $158 billion tax cut plan, will serve to boost economic growth going forward.

“Indeed, Governor Lowe has indicated the government could be doing more to help wind back spare capacity in the economy and has called for more government infrastructure investment and economic reforms in order to encourage the creation of jobs, lift lacklustre wages and help bring inflation in line with target.