A Confidence Booster from The RBA

Interest RatesThe Reserve Bank of Australia (RBA) has delivered some good news to homeowners and investors this week with the announcement that interest rates have been cut again – this time to 4.25 per cent.

Since the rates were already cut in November this year, MICM Property has seen some positive flow to a sluggish real estate market, as well as an increase in buyer activity. This movement assists affordability, which in turn is expected to stimulate demand well into 2012. The latest December cut will only add to this effect over the next couple of months – and will yield some savings for canny investors.

With every 0.25 per cent drop in interest rates, about $60 a month can be saved off the interest of the average Australian mortgage of about $300k. Should the interest cut be passed along in full by the banks, investors can speed up their repayments by keeping them at the same rate they were prior to December.

In a media landscape heavy with gloom, the RBA announcement is welcome relief to many at the end of a tough year. A media release from 6 December acknowledged that the cut was due in part to warding off the effects of the European debt crisis. “Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” says Glenn Stevens, RBA’s Governor of Monetary Policy Decision.

This week’s rates cut should also benefit businesses, in particular some retailers struggling with the downturn. Most importantly, the cut will provide a boost in confidence for the investors and first homebuyers looking to move into the property market who have been holding off due to economic uncertainty. The RBA announcement marks the first back-to-back monthly cuts in nearly three years and is excellent news for next year’s outlook in terms of demand for property and mortgage savings.

The RBA board is not due to meet again to set interest rates until February 7 next year.