RBA cuts again – but are there yet ? Not yet Glenn Steven's

Well all hail chief Westpac Economist Bill Evan’s. He called it 12 months ago as he seen what we all new on the street in regional Australian cities like Townsville – a large segment of the economy is hurting.

And if Bill Evan;s has it right – and that’s pretty much that the rest f the world is in the trenches under shell fire and not much is going to change overnight – then we have more cuts ahead of us.

So what’s the income for the Townsville Property Market – an increase in interest is now increasing sales volumes.

Prices are certainly not moving North (up), but genuine buyers are out there and a hint of optimism around the open houses is out weighing the dooms dayers.

The unit market is still very tough, but this is still subdued due to forced sales and the increase in Body Corporates – but remember no more names like Tom Hedley and Glenwood on the billboards outside large vacant inner city parcels of land – which means we should in time find supply and demand equalize and prices stabilse. Were not there yet either.

Horror stories still abound about blocks of land being purchased for $225000 on 2007 and selling in the $170’s. And the builders boost turn off does nothing but make it tougher for the construction industry.

Stamp duty drops will however make it easier to trade up – providing you can still sell your existing home and come out with equity to enable the step up.

One thing is for sure – today’s rate cut off the back of 0.50% last month certainly goes a long way to giving Townsville Real Estate a shot in the arm.

To give context to the rate cut here’s a copy of an article from the Business Spectator :

The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points to 3.50 per cent, citing further weakening in Europe and some moderation in growth in China as contributing to its decision.

However, mortgage holders are waiting to find out how much of the cut will be passed on by the banks.

At 3.50 per cent, official interest rates are at their lowest levels since November 2009.

Europe’s economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks,” the RBA said.

The cut was in line with market consensus of a 25 basis point reduction.

The RBA’s decision to drop interest rates at its June board meeting comes after it cut the cash rate by 50 basis points in May.

The major banks have yet to announce by how much they will cut rates and ANZ will not make its decision until Friday week.

If lenders do pass on the rate cut in full, home owners with a $300,000 mortgage will save an average of about $48 a month on repayments

Since November last year the cash rate has fallen 1.25 percentage points, including a 0.5 percentage point cut last month, and futures markets are pricing in a further half a percentage points in cuts by the end of the year.

In a statement accompanying the rates decision on Tuesday, RBA governor Glenn Stevens highlighted the risk posed by Europe’s sovereign debt crisis to the Australian economy.

“The board has noted previously that Europe would remain a potential source of adverse shocks,” he said.

“Europe’s economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks.”

Mr Stevens said Australia’s terms of trade had fallen over the past six months while commodity prices were lower and the local housing market remained subdued.

He said that, with inflation expected to remain near the bottom the RBA’s two to three per cent target range, the RBA had room to cut the cash rate.

“The Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.”

Commonwealth Bank chief economist Michael Blythe said the decision to cut by 25 basis points, rather than the 50 points markets had expected, suggested the central bank was “keeping its powder dry” in case the European situation worsened.

“If something really does go wrong in Europe then you want the ability to move very aggressively, like we did a few years ago,” he said.

“You don’t necessarily want to fire off all your shots too early in that kind of environment.”

If lenders pass the rate cut on in full, home owners with a $300,000 mortgage will save an average of about $48 a month on repayments.

UBS interest rate strategist Matthew Johnson said the decision was motivated mainly by downgrades to the global economic growth outlook and the RBA’s financial markets conditions assessment.

“There is potential for both of those views to be downgraded further,” he said.

“For example, they left the US steady, they can be downgraded, and financial markets can continue to flake out if something bad happens in Europe.”

Mr Johnson said the bond market rallied following the rates decision and the futures market was pricing in a 100 per cent chance of another 0.25 percentage point rate cut in July, with the possibility of a 0.5 percentage point cut.

Business groups, unions urge banks to pass on full cut

The Reserve Bank of Australia (RBA) drew widespread praise from business and unions for its latest cash rate cut, but they say the move needs to be passed on by retail banks if it is to have any effect.

Australian Chamber of Commerce and Industry director for economics and industry policy Greg Evans said the RBA cut was intended to ease pressures on borrowers and not boost bank profit margins.

“The full amount of the official easing needs to be passed on to Australian borrowers,” he told reporters in Canberra on Tuesday.

He also called on the federal government to scrap plans to introduce a carbon tax, given soft economic conditions locally and overseas.

“Australian businesses are under pressure and this is no time to introduce a new tax,” Mr Evans said.

Housing Industry Association senior economist Andrew Harvey said the RBA’s decision would help confidence and activity in the residential construction sector and the wider domestic economy.

“Today’s rate cut sends a clear signal that the Reserve Bank is serious about two things: insulating the Australian economy from volatility in the world economy; and improving confidence and activity in the domestic economy,” Mr Harvey said.

But the retail banks had a “social obligation” to pass-through the full official rate to businesses and households.

ACTU Secretary Dave Oliver agreed, saying the banks could not ignore the RBA decision.

“Australia’s big four banks cannot again use it to line their own profits,” he said in a statement.

National Farmers Federation head Matt Linnegar also wants the cut passed on to a sector that is in a slump due to lower commodity prices, a high Australian dollar and an increase in farm input costs.

“Like all business owners, farmers cannot afford to miss out on interest rate cuts designed to boost the weakening economy and encourage spending growth,” he said.

Retailers were “overjoyed” and are also clamouring for the banks to pass it on.

“The need for RBA to continue to stimulate the economy over coming months is now becoming very clear,” Australian Retailers Association executive director Russell Zimmerman said.

However, seniors living of their investments were not happy with the RBA move.

“We only hear the upside of falling interest rates, but the reality is many older Australians still depend on simple bank deposits,” National Seniors chief executive Michael O’Neill said.

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