JUST HOW LOW CAN THEY GO ??

lift subdued economy

5 May 2015 by Dr Andrew Wilson

The Reserve Bank has decided to follow up its February rate cut with a further cut over May reflecting continuing concerns over the state of the national economy.

• Official rates cut as economy remains weak and dollar rises
• Easing cycle now in full swing
• Housing market activity rising as confidence lifts with falling rates
• More cuts likely if economy fails to revive

The Bank cut official rates by another 0.25 percent to bring the official cash rate to a record low 2.0 percent.

This month’s action by the Reserve Bank follows the February cut which broke a sequence of 16 consecutive months of steady rates.

The May rate reduction reflects weak economic data with the ABS reporting a national unemployment trend rate of 6.1 percent over March. Although this was a reduction over the previous months 6.2 percent, the rate nonetheless remains at near 12 year highs.

Housing market activity has continued to strengthen in most capital cities with lower rates and rising confidence fuelling higher buyer activity. Auction activity in Sydney, Melbourne and Brisbane has tracked at or near record levels over April and into May with the Sydney market remaining particularly robust.

Although rates have been cut for May the bias for future action from the Bank likely remains downwards. This however will be tested by the negative economic aspects of the current record low levels of rates and strongly rising housing market activity.

Lower mortgage rates through further rate cuts may continue to fuel strong prices growth particularly in the Sydney and Melbourne markets.

Lower interest rates however are unequivocally good news for mortgage holders although not so good news for those on fixed incomes that are dependent on bank deposit rates.

Just how low can those interest rates go???

MAKE YOUR OWN DECISIONS AND GIVE IT A REAL GO !!