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  • Michael Clarke

How Low Can Mortgage Rates Go?

On the 3rd May the Reserve Bank of Australia dropped their target cash rate to 1.75%. Primarily this was on the basis of :-

  • Low wages growth

  • Inflation being on or below the 2% bottom end of the acceptable band

  • Moderate Chinese economic growth (a major trading partner)

  • Modest commodity prices

  • Evidence that prior strengthening of credit lending policy has had the desired effect of softening demand for residential investment properties.

Notwithstanding the above we are currently in the process of a long drawn out Federal election which always adds uncertainty to business & the household sector alike, & through the winter period this could see a further waning of economic growth forecasts. The question is, that if the cost of borrowing is already so low & it’s not stimulating overall economic growth, then will any further rate reductions have that desirable effect? Certainly many of the commercial banks are still offering strong sub 4% fixed (3) year home loan rates (on or similar to basic variable rate offers). That’s always an indication of where they think economic growth will be in the medium term. It’s likely to remain slow & low, but as I said above, lowering the cost of borrowing money any further, is not necessarily the panacea. At this point for at least the next (6) months the Reserve Bank is likely to keep rates on hold with a neutral bias.

This effectively means for borrowers there is some stability & as I said some good offers on (3) year fixed home loan rates if certainty is what you seek.

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