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RBA drops cash rate to 2.0%: what the experts are saying

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The Reserve Bank's decision to cut the cash rate by 25 basis points to a new historical low of 2%, effective from May 6, 2015, will no doubt be welcomed by home owners.

RBA governor Glenn Stevens said the global economy was expanding at a moderate pace but commodity prices had declined over the past year, in some cases sharply. These trends appear largely to reflect increased supply, including from Australia. Australia's terms of trade are falling, nonetheless.

The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.

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The board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.

What are the experts saying about the decision to cut the rate?

Neville Sanders, REIA president

"With an official interest rate of just 2.0%, most home owners can expect to be paying an average of 5.3% and so the RBA board's decision will help home owners on an average loan by around $70 per month, but the lenders need to pass on this rate cut to borrowers in full. The recent low rates have allowed many Australians to enter the property market. However, borrowers should remember that interest rates will inevitably rise as the economy strengthens and they should not overreach themselves."

John Flavell, CEO of Mortgage Choice

"This opens up a great opportunity for home owners and potential home buyers alike. If you have been in the same mortgage for the last few years, you may find there is another product that is not only cheaper but more suitable to your needs. Alternatively, if you are looking to get onto the property ladder in the not-too-distant future, now may be a great time to do just that."

Tim Lawless, CoreLogic RP Data head of research

"The RBA is in a tough position, aiming to drag the Australian dollar lower and stimulate economic growth without adding more fuel to housing market demand. The Sydney and Melbourne housing markets are already responding to lower mortgage rates; since the previous interest rate cut in February CoreLogic RP Data have reported auction clearance rates moving to new record highs and the annual trend in capital gains has rebounded higher after moderating over most of 2014."

Peter Arnold, banking analyst at RateCity.com.au

"Typical borrowers will be saving around $1200 this year on their home loan repayments compared to what they paid the previous year. For a lot of people in the capital cities it will be around double that. In this increasingly low-interest rate environment people are really starting to sit up and take note of low rates. At the February rate cut we saw 60% more people looking for home loans and we're expecting that to really spike again after this latest cut."

The RateCity database shows that, until recently, the most competitive variable rates were sitting as low as 4.19% and if the latest 0.25% cut is passed on in full by lenders, the pointy end of the market will dip to 3.94%.

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