Why More Cuts to Interest Rates Are Needed

By Paul Bennion, Managing Director, DEPPRO

Last month I urged the RBA to start cutting interest rates and I am really pleased they have begun this process with the 0.25% cut to official interest rates on 4 June.

But we need even more interest rate cuts this year to help kick start the economy and the property market.

The urgent need for more interest rate cuts was highlighted on the 5 June with the release of the latest economic growth figures.

It shows that our economy grew by just 1.8%in the year to March which was the weakest since the GFC.

What is driving this low economic growth rate are falling house prices throughout Australia and the fact that people are more cautious about spending money due to this uncertainty in the real estate market.

Major Central Banks Overview

Central Banks

Current Interest Rate

Next Meeting

Last Change

Reserve Bank of Australia

1.250 %

7-2-2019 - 04:30

6-4-2019 - 04:30

Federal Reserve

2.500 %

6-19-2019 - 18:00

12-19-2018 - 19:00

Swiss National Bank

-0.750 %

6-13-2019 - 07:30

1-15-2015 - 09:30

European Central Bank

0.000 %

7-25-2019 - 11:45

3-10-2016 - 12:45

Bank of Japan

-0.100 %

6-20-2019 - 02:00

1-29-2016 - 03:00

Reserve Bank of New Zealand

1.500 %

6-25-2019 - 21:00

5-8-2019 - 02:00

Bank of Canada

1.750 %

7-10-2019 - 14:00

10-24-2018 - 14:00

Bank of England

0.750 %

6-20-2019 - 11:00

8-2-2018 - 11:00

The reality is that there are trillions of dollars tied in in real estate throughout Australia and any negativity in the property market has major ripple effects throughout the entire economy.

Back in 2008, the RBA responded very quickly to the GFC through a succession of interest cuts over a five month period to help kick start the economy.

Today, we need a similar response from the RBA with further interest rate cuts over the following months.

The reality is that official interest rates in Australia are still relatively high compared to other world economies with low economic growth rates.

For example, in Europe official interest rates are now at 0% while in the UK they are half that of Australia at 0.75% even though their unemployment rate is just 3.8% compared to 5.2% in Australia.

To help turn around our economy Government should be doing everything to assist the property sector as this is the bedrock of consumer confidence.

I am pleased APRA has further relaxed their lending rules for property investors but more needs to be down by the Government to encourage banks to lend money the housing sector.

Bank lending to the housing sector and in particular property investors is still restrictive as a result of the recent Royal Commission in the finance sector.

This lack of support by banks to the housing sector was underlined by the fact that not all banks passed on the latest interest rate cut in full to their customers.

There is no point in the RBA cutting interest rates if they are not fully passed on by the major banks.

The Government needs to make is very clear to the banking sector that any further cuts to interest rates must be fully passed to their customers.

Further cuts in interest rates will help restore confidence in the property market while at the same time making it more affordable for people to buy real estate.

More investors will enter the property investment market leading to new construction jobs being created to construct new housing developments.

They will also give a boost to the overall economy and job creation which in turn will be a positive for the property market.