The Reserve Bank has cut interest rates for the first time since August 2013, reducing the official cost of borrowing by 25 basis points. The move takes the cash rate down to 2.25 per cent, a record low since the Reserve Bank gained independence and started targeting inflation in the 1990s.
Housing market concerns
The biggest concern many economists had with a rate cut was that it may stoke an already-buoyant housing market, which had risen nearly 20 per cent nationally since the rate-reduction cycle started in late 2011.
Property analyst Tim Lawless from CoreLogic RP Data said the rate cut, if passed on, would take the typical standard variable mortgage rate down to 5.7 per cent, and the more usual discounted rates to 4.85 per cent on average.
Bank of Queensland has already announced it will pass on the rate cut in full, taking its standing variable rate down to 5.76 per cent and the discount rate to 4.62 per cent, but not until February 24.
ME Bank will also pass on the cut in full from February 20, but the major banks so far have said only that their rates are under review in light of the decision.
Rate comparison website Finder said a 25-basis-point reduction would save borrowers around $47 per month on an average $300,000 home loan.
Mr Lawless said the average level of home loan rates would now fall to its lowest since 1968. "Lower mortgage rates have the potential to add some fuel to what are already strong housing markets," he cautioned.
Bank responses
"Lower consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015."
That would certainly be what the Reserve Bank would be hoping, with Mr Stevens again noting a steep rise in Sydney housing prices and a strong rise in lending to investors.
"The bank is working with other regulators to assess and contain economic risks that may arise from the housing market," he said in his post-meeting statement.
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