Thanks to yet another RBA rate cut to yet another record low interest rate, there is speculation that 3.9% home loans could be on the way to Perth if the Reserve Bank continues to cut rates. Here is what many experts see happening.
In March, experts expected rates to eventually fall as low as 1.5% by the end of the year. So far this year, there have been two rate cuts, the latest on 4 May to bring the RBA cash interest rate down to 2%.
The RBA cited two main drivers for the current rate cut: a drop in iron ore export prices and a rise in Sydney property prices. The RBA cut followed similar cuts in Canada, China, India, Korea and Singapore. The dollar was also beginning to rise against the US dollar, which is not healthy for us. It immediately began to fall following the rate cut.
According to Shane Oliver, Chief Economist for AMP National, the decision was the correct one. Mr Oliver cites slow business growth, slow property markets outside of Sydney and plummeting iron ore prices as reasons why the RBA made the correct move.
According to Australian Treasurer Joe Hockey, the price of iron ore is falling so fast that the Government stands to sustain “multi billion dollar losses” due to the price of iron ore. Iron ore is currently in high supply and low demand, especially in China, who purchased a lot of iron ore from Australia during the mining boom.
The lower the Australian dollar falls against the US dollar, the more money iron ore brings in because its price is tied to US dollars. RBA Governor Glenn Stevens is of the opinion that more cuts will be necessary.
What it Means to You
We aren’t so sure about 3.9% loans, but with rates now available in the low 4% range right now. We advise starting the ball rolling now before property prices follow Sydney’s example.
To learn more, call (08) 9453 8888 today.