{"id":188013,"date":"2025-02-18T18:30:20","date_gmt":"2025-02-18T07:30:20","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=188013"},"modified":"2025-02-20T01:13:12","modified_gmt":"2025-02-19T14:13:12","slug":"rate-relief-rba-cuts-the-cash-rate-by-25-basis-points","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/rate-relief-rba-cuts-the-cash-rate-by-25-basis-points\/","title":{"rendered":"Rate relief: RBA cuts the cash rate by 25 basis points"},"content":{"rendered":"

After the most aggressive rate hiking cycle on record, the RBA has reduced the cash rate from a thirteen-year high of 4.35% to 4.1%.<\/p>\n

\"Rba<\/p>\n

With annualised 6-month core inflation around the middle of the RBA\u2019s 2-3% target range, the easing in cost-of-living pressures was a key factor behind the RBA\u2019s decision to cut rates.<\/p>\n

Australia has moved through seven straight quarters of negative per-capita GDP growth, which may have provided another compelling reason to cut rates.<\/p>\n

Other factors supporting the decision were a weakening wages growth, which undershot the RBA\u2019s most recent forecast and generally soft retail spending outcomes.<\/p>\n

\"Quarterly<\/p>\n

But we shouldn\u2019t get our hopes up for a rapid or significant rate-cutting cycle in the near term.<\/p>\n

The RBA is likely to remain alert to the data flows, with persistently tight labour markets, a weak Australian dollar and elevated levels of global uncertainty remaining as downside factors that are likely to keep the loosening cycle a gradual and cautious one.<\/p>\n

From a housing perspective, the 25bp cut will provide some modest relief to borrowers, with the average mortgage rate for owner-occupier loans set to ease from around 6.32% to 6.07% if passed on in full (which is highly likely).<\/p>\n

A variable rate borrower with $750k of debt should see their monthly repayments reduced by around $121\/month.<\/p>\n

Arguably the greater effect on housing markets will be the confidence injection received from the commencement of the rate-cutting cycle.<\/p>\n

<\/div>\n

Measures of consumer sentiment have already shown a solid rise through the second half of 2024 as households became more certain the rate hiking cycle was over and the outlook for household finances started to improve.<\/p>\n

Historically there has been a clear relationship between changes in consumer sentiment and home purchasing activity.<\/p>\n

Whether the commencement of rate cuts will be enough to stave off further declines in home values is yet to be seen.<\/p>\n

CoreLogic\u2019s national measure of housing values, the Home Value Index, peaked in October last year and has nudged 0.3% lower since then, with Melbourne, Canberra and Hobart all recording an annual decline in home values over the 12 months to January.<\/p>\n

Lower interest rates should help to stabilise values, but we aren\u2019t expecting the early phase of rates cuts to be the catalyst for a new phase of material growth in housing values due to factors like stretched housing affordability.<\/p>\n

As outlined in earlier research from CoreLogic<\/a>, previous periods of rate reductions suggest national dwelling values could increase an average of 6.1% for each 1 percentage point decline in the cash rate.<\/p>\n

Additionally, relatively expensive markets have historically shown stronger responses to reduced cash rate settings.<\/p>\n

A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing market, which tends to be the bellwether for broader market recoveries in those cities.<\/p>\n