By now you know that interest rates have been cut again.
What does this mean for property investors?
Here’s what the Macquarie Bank had to say:
At the Reserve Bank Board’s May meeting, it cut official interest rates by 0.25% to 2.0%.
This is the second rate cut this year, with February’s cut already taking rates to a historical low level.
Australian economy growing below trend
Despite no movement in March and April, the minutes from these meetings highlighted the Australian economy is growing below trend and would continue to operate with spare capacity.
There had also been indications business investment could remain subdued for longer than had previously been expected.
Business confidence has not yet improved
Business confidence, as measured by conditions and expectations, has not yet improved.
The Australian dollar
The RBA commented again that the Australian currency was above fundamental value. Macquarie has downgraded its view and forecasts the Australian dollar to be at 67 US cents by the year end.
Further rate cut forecasted
Macquarie’s economists now believe that there will be one more rate cut, most likely in August, taking the official cash rate to 1.75%.
This is based on the RBA’s own growth outlook and the combination of weak commodity prices, the soft employment market, muted consumer spending and the need for a lower currency.
We also believe that, before taking further policy action, the RBA is waiting for building activity to accelerate which will add supply to the buoyant housing market, helping to cool it a little.
The next RBA board meeting will be held on Tuesday 2 June.
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