The Reserve Bank of Australia announced on Tuesday the 7th October, that it would cut the official Australian Interest rate by 1% in reaction to the continuing deterioration in world financial markets.
This is terrific news for all Australian home owners and property investors as it follows last months 0.25% reduction, bringing the official base rate to 6%.
We have now returned to the same base rate as August 2006, so the minor rate rises since then have all been taken back.
Importantly, all the major banks have announced they will be passing on 0.8% of this cut to their customers, requiring only 0.2% to absorb the higher costs of funding being experienced around the world.
The Australian economy remains robust, however this action is seen as a precautionary approach to ensure that if the global situation continues to deteriorate, then Australia should remain more insulated than most from a financial perspective.
The Australian property market has been on pause for the past 6 months as rate rises spooked buyers into deferring decisions, so this rate reduction should go a long way to providing renewed momentum especially as we move into the busy period of migration arrivals over the Summer period.
The global financial crisis will no doubt continue to provide a back drop of uncertainty in the short term, but we can only hope to see swift government intervention such as the US Bail Out, to ensure the key missing ingredient of “Market Confidence” is restored and things can move back towards some normality as soon as possible.
All focus now shifts to the US Elections in November and a hope for a new era of forthright leadership from whoever becomes the President Elect.
The predicament facing the US Economy is the major influence on financial markets at present and the world is watching closely to see if they can stabilise the chaos that has engulfed Wall St.
Until then we have a silver lining in Australia with a reduction in rates and the knowledge that we have strong and sensible regulation that will ensure we do not follow the path of the US, and the good fortune to have the continuing significant incoming migration population that keeps our markets strong and growing despite the madness in the rest of the world.
Do not be surprised to see a boost in Australian property prices in all states over the next 6 months as a combination of a stable economy, strong population growth and undersupply in housing construction remain the real and dominant drivers in price growth, and the reduction in the Australian dollar makes acquiring an Australian property so much more affordable to the foreign investor and expatriate that has been waiting on the sidelines.
Click here to read the RBA Media Release
