What an unexpected day yesterday!
The reserve bank hasn’t slashed rates by 100 basis points since May 1992.
The official cash rate is now 6.0%; the big banks however will not pass this latest 1% drop in full to customers. Yet majority of it should be with Westpac announcing it will pass on 0.8% of the 1% cut.
So what’s happened since the last time the reserve bank met?
The world financial meltdown has continued to ripple through many parts of the established world. America, France, Germany, Japan and many others are in a recession; the UK is not too far off.
The collapse of Lehman Brothers, one of the world’s largest investment banks has really crippled the world financial system.
Commodity prices have started falling and much of Asia’s growth seems to be moderating. China’s growth rate is expected to drop slightly from over 10% consistent year on year growth to around 8.5%.
So were does this leave us?
We are probably the best-placed western country in the world right now.
- Our banking system is sound and still profitable.
- Commodity prices have dropped but the outlook still looks good for the next 20 years.
- Asia’s growth is moderating, but growth rates are still incredibly high (Besides Japan) in which we rely heavily on.
The property market can view these latest rate cuts in two different ways:
- With caution: Holding out to see what happens with the entire economy over the next couple of months.
- Optimism: This could prove to be a real stimulator to auction clearance rates and put further increases on pricing.
People I’ve spoken with have been mixed between the two groups above. A number of people have changed their search criteria to obtain a bigger or better home as the extra saving from the rate cuts enables them to spend more.
This weekend should prove a very interesting weekend. We haven’t really any data from the last time a rate cut was given of this magnitude and its affects on auction clearance rates.
This manoeuvre from the reserve bank could be a history defining moment. It only takes a stroll down to the local supermarket or electronic store to see people aren’t spending like they used to.
The latest rate cuts could prove a real winner for the average homebuyer or owner.
Read here for the full statement by Glenn Stevens, the governor of the reserve bank.
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