Reserve Bank Announcement - August 2016

Reserve Bank Announcement - August 2016

It's the start of another month which means the Reserve Bank of Australia released their decision this morning regarding the cash rate.

As predicted by a number of leading Australian economist's, the Reserve Bank has decided to lower the cash rate by 25 basis points to 1.50% for the month ahead, August 2016.

In releasing their decision the Governor of the Reserve Bank, Glenn Stevens, made the following comments:

"The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. Actions by Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China's growth appears to be moderating.

Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.

Financial markets have continued to function effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative.

In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term. 

Recent data confirm that inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.

Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. The most recent information suggests that dwelling prices have been rising only moderately over the course of this year, with considerable supply of apartments scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished. 

Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting."

What does it all mean?

This months cash rate decision means that the cash rate is now at a new all-time low, and economists are predicting that we can excpect to see it stay low for the remainder of 2016.

Interest rates are also at an all-time low and credit lenders around Australia are in high competition with each other to offer unique and attractive rates and products. If you are a home owner and you have a mortgage, now is the perfect time to review your financial solution and ensure that you are still using the most suitable solution available to you at this time.

If you have any questions about the cash rate and how it impacts you, please do not hesitate to contact iconic home loans on 1300 663 943 or send us an email.

Have a lovely afternoon.

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