If economists are right in their predictions, the RBA will cut rates by a further quarter of a per cent when it meets again in May.
Senior ANZ economist Felicity Emmet sights a number of factors that point to a likely downward shift in rates;
“It’s looking like more of a line-ball call this month, but we think there will be another drop,” she says.
“The RBA will be thinking that growth is going to stay below trend and if unemployment is going to rise, they may need to cut rates again.”
When the RBA slashed the rate by 0.25% earlier in February, slow economic growth was a driving factor. According to Emmet, a second rate cut could stimulate the economy and bring Australia into line with monetary policies overseas.
“Rates are at historically low levels, but we’re in a different international environment and when you look internationally, Australia still has a relatively high interest rate structure.”
“So I think the world has changed and we are changing with it.”
What would be the result of a further rate cut?
Ultimately, a further cut to the interest rates would help stimulate the property market and spur on further investor activity as a result of reduced debt and ‘cheap money’.
Credit and financial advisor Robert Rollfink of Rockfeather Financial believes “any property investor would be insane not to get a five-year fixed rate.”
“If you’re a long-term property investor, why wouldn’t you lock it in while money’s cheap?”
As competition amongst lenders increases, fixed rate and split home loan options have becoming increasingly popular.
“People are looking at three to five year fixed loans or split 80:20, 70:30 loans,” he says.
“Others are taking advantage of cheap rates by paying extra on their mortgages because they know they can redraw.”
What would prevent a rate cut?
According to many economists, one of the main factors that may prevent a further rate cut are the current conditions in the Sydney property market, which is showing no signs of slowing down.
Speaking in New York on April 21, RBA Governor Glenn Stevens said the question of a rate decrease “has to be on the table”, but expressed concern over Sydney house prices.
“Popular commentary is, in my opinion, too focused on Sydney prices and pays too little attention to the more disparate trends among the other 80% of Australia.”
“The said, it is hard to escape the conclusion that Sydney prices — up by a third since 2012 — look rather exuberant.”
Other factors to consider
Apart from the property market, the RBA will look into Australia’s struggling mining sector when it meets on May 5.
Iron ore prices have fallen sharply since March, which PM Tony Abbott has attributed to a cut in government revenue of more than $30 billion over four years.
This is likely to make a big impact on Treasurer Joe Hockey’s efforts to balance the books when he delivers the budget on the second Tuesday in May.