Further rate cuts needed
May 04, 2012
The decision by the Reserve Bank of Australia to cut the cash rate by 50 basis points today is a step in the right direction, according to Colliers International.
But Mark Courtney, Colliers International Research Director, said more cuts are needed and in fact, expected.
“It’s been said before, but it must be said again – further cash rate cuts are needed,” he said. “I would expect there will be a cut of around another 25 basis points over the coming months – and the property industry is looking forward to this drop.
“These cuts are needed to get things moving in the property industry, especially since the banks are not likely to pass on the full cut to their customers.
“If the banks pass on a cut of 25 basis points to mortgage variable rates after today’s decision by the RBA to cut the official interest rate by 50 basis points it would be a positive for the property market, but more cuts are still needed.”
The most important thing that is needed, said Mr Courtney, is synchronicity between the RBA and the rest of the finance sector in Australia, so that all the pieces of the puzzle come together and the property market can move in the right direction.
“While it is good that the RBA has cut the cash rate today, the banks need to pass it on and it needs to be followed with further cuts down the track to get things moving,” he said.
“If the banks do not follow suit and pass the cash rate cut on then the RBA’s official interest rate drop really becomes quite meaningless for the property market.”
Mr Courtney pointed out that Queensland especially is on the cusp of some big economic growth flowing on from the resources and mining boom but drops in interest rates are imperative for the boom to flow on to the property market.
“Sentiment, especially from big institutions, is very positive for Queensland and Brisbane, which is likely to translate into good growth in the state.
“But if the financial sector doesn’t synchronise with the RBA and what is happening in the economy by dropping interest rates, the state could be in a situation where there are genuine opportunities in the property market but no funding available or if there is funding available, it costs too much, and therefore the property sector will not grow along with the economy.
“Rather, we need to be in a position where property firms can start getting prepared for an uplift in the market and prepare to do projects and developments. If there is an opportunity for property growth, it will flow back to the overall economic growth by creating jobs, and the banks will benefit by expanding their books and generating higher profits.”
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