OFFICIAL INTEREST RATES IN UNCHARTERED TERRITORY!

The Reserve Bank of Australia (RBA) cut official rates by another 0.25 percent to bring the official cash rate to a record low 2.0 percent.


This month’s action by the RBA follows the February cut which broke a sequence of 16 consecutive months of steady rates.


The May rate reduction reflects weak economic data with the ABS reporting a national unemployment trend rate of 6.1 percent over March. Although this was a reduction over the previous months 6.2 percent, the rate nonetheless remains at near 12 year highs.


Housing market activity has continued to strengthen in most capital cities with lower rates and rising confidence fuelling higher buyer activity. Auction activity in Sydney, Melbourne and Brisbane has tracked at or near record levels over April and into May with the Sydney market remaining particularly robust.


Although rates have been cut for May the bias for future action from the RBA likely remains downwards. This however will be tested by the negative economic aspects of the current record low levels of rates and strongly rising housing market activity.


Lower mortgage rates through further rate cuts may continue to fuel strong prices growth particularly in the Sydney and Melbourne markets.