RBA cuts cash rate again but banks not expected to follow
At their monthly board meeting today the RBA decided to cut interest rates.
The likelihood of an interest rate cut had been rising throughout June, particularly since the weak GDP reading in early June and following RBA Governor Phil Lowe's speech which indicated that a single 25 basis point cut to rates (which was delivered last month) was unlikely to shift the path that we are on.
The decision to cut interest rates is an attempt from the RBA to support the economy; the decision has very little to do with housing market conditions.
In fact, the ongoing slowing of the rate of decline in dwelling values throughout 2019 and the recent uptick in Sydney and Melbourne dwelling values, would likely have reduced concerns of further wealth erosion from housing.
Furthermore, the 25 basis point cut in June along with the cut today and the likelihood of reduced serviceability buffers from APRA are likely to be further positives for the housing market and encourage an ongoing gradual levelling in the housing downturn nationally.
Despite these positives, the introduction of the Banking Code of Conduct and the expansion of Comprehensive Credit Reporting from the beginning of July will ensure that although taking out a mortgage may become a little easier, the scrutiny on loan applications will remain significantly greater than it has been in the past.
Given this, the expectation is that a recovery in housing market conditions is likely to be slow and gradual despite lower interest rates.
No doubt attention will now turn to mortgage rates and how much of the cash rate cut will be passed through to mortgages.
Our expectation is that banks will be holding back on passing on the full cut as they seek to balance out mortgage rates with deposit rates and protect net interest margins.