Interest rates cut as economy recovers from coronavirus pandemic

LOW: The Reserve Bank of Australia slashed interest rates to 0.1 per cent on Tuesday. Picture: Shutterstock
LOW: The Reserve Bank of Australia slashed interest rates to 0.1 per cent on Tuesday. Picture: Shutterstock

The Reserve Bank of Australia has slashed interest rates to 0.1 per cent, in a bid to support job creation and aid the economy's recovery from the coronavirus pandemic.

If banks pass on all of the 0.15 per cent interest rate cut to consumers, PH Property director Brad Hinton said more buyers could be in the market to purchase and invest in property.

"First home buyers in particular are looking for flat land that is easy to build on," Bendigo-based Mr Hinton said.

"In the absence of that, they are resorting to established, affordable property priced between $250,000 and $350,000 that needs a bit of love."

Data released by the Australian Bureau of Statistics on Monday revealed the value of owner occupier home loan commitments rose six per cent to $17.3 billion in September.

About half of the September rise was for the construction of new dwellings, which rose 25.3 per cent.

ABS head of Finance and Wealth Amanda Seneviratne said owner occupier housing loan commitments are at historically high levels.

"It is likely that the HomeBuilder grant is contributing to increased demand for construction loans," Ms Seneviratne said.

Bendigo and Adelaide Bank head of economic market research David Robertson said the RBA has been clear in recent messaging that they wish to provide further monetary support to the economy.

"This was most likely to be via a reduction in the official cash rate and further bond purchases," Mr Robertson said.

The RBA also announced the purchase of $100 billion in government bonds of maturities of around five to 10 years over the next six months.

It said the combination of bond purchases and lower interest rates will assist recovery by lowering financing costs for borrowers and supporting asset prices and balance sheets.

If passed on in full by commercial banks, holders of a $300,000 mortgage would save about $23 a month.

The historic-low interest rate announcement came amid updated economic modelling and forecasts, which showed Australia's economy will take some time to reach the pre-pandemic level of output.

The RBA board said while the September quarter is expected to show positive GDP growth, the unemployment rate is expected to remain high, but to peak at a little below eight per cent, rather than the 10 per cent previously expected.

By the end of 2022, it said the unemployment rate is forecast to be about six per cent.

This story Record low interest rates are good news for property buyers first appeared on Bendigo Advertiser.