Interest Rate Cut: Government Needs To Do More

LJ Hooker’s head of research, Mathew Tiller, welcomed this week's official cash rate cut, of 25 basis points, from the Reserve Bank of Australia (RBA).

“A string of soft and underwhelming economic data results (GDP, unemployment and retail sales) ensured that the RBA had to reduce the official cash rate by 25 basis points this month. This pushes the cash rate down to 0.75% leaving little room for further cuts if required.

“Given the muted economic effect of the last two rate cuts, the RBA will continue to push its message that more fiscal stimulus is required to boost economic growth – a call out to the government to reassess its expenditure.

“We have a situation where the government’s tightening of fiscal policy is working against the RBA’s loosening of monetary policy. The federal government recently announced that the budget was ‘back in balance’ at a time when it needed to be spending more to help businesses create jobs, support household budgets and deliver large infrastructure projects.

“Property markets have been one of the few beneficiaries of recent rate cuts with higher levels of buyer demand pushing prices higher, particularly in Sydney and Melbourne. The rapid improvement in mortgage affordability has been a key driver of increased buyer enquiry; as interest rates have continued to decline and banks have reduced their serviceability rate, meaning buyers have the ability to borrow more.

“The other major driver, pushing up property prices over recent months, has been the low number of properties on the market for sale. Homeowners have been reluctant to list their properties due to the lack of choice to relocate. That said, LJ Hooker agents have reported higher levels of appraisals, over the past month, which will result in a higher number of listings over the coming weeks as we move into summer,” said Mr. Tiller.