As always, buyer sentiment is influenced by the combination of local area market conditions and the overall macro-economic environment. Although a cut in the official interest rate was widely expected last week, the announcement of a 50 basis points reduction to 3.75% came as a surprise to many. The decision represents the first outsized cut since the height of the Global Financial Crisis in 2008.
Prior to the news, an article in the Daily Telegraph said major industry groups were pleading for a cut after new home figures showed sales have collapsed to their lowest levels in more than a decade. After the announcement, RBA Governor Glenn Stevens said a lower inflation rate provided the scope for the RBA to cut interest rates to help stimulate the economy. But a News.com.au article said most economists believed the banks would not pass on the cut in full, despite the Herald suggesting the major four banks are expected to report a combined first-half profit of $12billion by the end of the next week.
National Australia Bank was the first of the major lenders to make a move, dropping their variable rate by .32%. Commonwealth was next, upping the ante to pass on .40%, but still holding back 10 points from the RBA cut. By the end of the week, Westpac had announced at .37% cut and ANZ was holding steadfastly to its out-of-cycle review schedule, with their next rates decision not due until the second Friday of the month.
Meanwhile globally, a Herald article reported that the earnings season in the US has featured regular negative commentary about Australia’s “weak” economy. Chief executives from major companies including Kellogs and McDonalds singled out the Australian market as being “difficult” and experiencing ongoing tightening. Locally, a separate Herald article said business insolvencies have reached an all-time high since insolvency statistics were introduced in 1999.
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