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RBA cuts rates to record low

Tuesday, 3rd Feb 2015
Categories: Market News, Newsletter

The Reserve Bank of Australia (RBA) has cut the official cash rate and provided further hints for possible investor lending regulations.

The RBA said it would reduce the cash rate to a record low of 2.25% after it had remained on hold at 2.5% since August 2013.

Announcing that rates would be cut, RBA governor Glenn Stevens said the cut was appropriate because growth was continuing at a below-trend pace.

“This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target,” Mr Stevens said.

He said Australia’s growth was likely to remain “a little below trend for somewhat longer”, and that unemployment would peak “a little higher” than expected.

“The economy is likely to be operating with a degree of spare capacity for some time yet,” Mr Stevens said.

Mr Stevens also pointed to the sharp drop in oil prices saying he expected this to temporarily lower inflation rates and provide some strength to global output.

He noted that credit growth picked up to moderate rates in 2014 with “stronger growth in lending to investors in housing assets”.

He also reiterated comments about the RBA’s intentions to curb risky lending to property investors.

“Dwelling prices have continued to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months.

“The Bank (RBA) is working with other regulators to assess and contain economic risks that may arise from the housing market.”

Senior RBA officials have previously said that they are working with the country’s banking regulator, the Australian Prudential Regulation Authority (APRA), to curb risky lending to property investors.

Major banks Westpac, ANZ and NAB predicted that the RBA would make two interest rate cuts in 2015, while the CBA forecast rates to remain on hold for the entire year.