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RBA Alert - cash rate at an all time low of 2.5%

The Reserve Bank has unsurprisingly decided to cut interest rates this month indicating increased concern over the prospects for the national economy. Rates have now fallen by 2.25 percent since the current easing cycle commenced in November 2011 and are now at a record low 2.5 percent.

Latest data supports the gloomy economic outlook with the jobless rate rising over June and building approvals down sharply over the month. The lower dollar and a recovering sharemarket are however a positive together with increased buyer activity in the housing market.

Housing markets continue the revival generally evident over the past year and fuelled by historically low interest rates. Solid to strong house price growth is now being recorded in most capital city markets as buyer activity and confidence continues to rise.

"The Reserve Bank has unsurprisingly decided to cut interest rates this month to offset the real prospect of sharply declining economic activity. The bias for interest rate settings will remain downwards in the near future with the level of unemployment the key to further rate cuts", says Dr Andrew Wilson Senior Economist for Australian Property Monitors.

"Home buyers and mortgage holders will welcome lower rates when passed on by the banks and this will add fuel to an already strong mid-winter performance by most capital city housing markets. Although home buyer activity thrives on low interest rates, the key to sustained growth in housing markets is a healthy economy and low unemployment".

INTEREST RATE ANNOUNCEMENT

The Reserve Bank surprised today by announcing a cut in the official interest rate by 0.25 percent to a new record low of 2.75 percent.

Today's announcement followed three months of rates on hold with the last cut of 0.25 percent in December last year.

Rates have now fallen by a full 2 percent since the beginning of the current easing cycle in November 2011.

Action by the Reserve Bank today indicates concerns by the Bank over the recent performance of the economy, particularly in regard to rising unemployment and declining national income.

Some sections of the Australian economy are clearly still in need of further stimulus with the Reserve Bank choosing to act while inflationary pressures remain benign.

Housing markets however have been a beneficiary of low interest rates this year with forward indicators such as auction clearance rates and housing loans clearly ahead of last year results.

"A further cut in interest rates, when and if passed on by the banks, will provide continued stimulus to strengthening housing markets through autumn and into winter", says Dr Andrew Wilson, Senior Economist for Australian Property Monitors.

"Lower interest rates and rising home buyer confidence are set to continue to generate house price growth although the performance of local economies remains the key as indicated by today's interest rate decision".