RBA rate cut: cheapest loans in 40 years?

Venessa Paech by Venessa Paech 03 Feb 2015 Interest Rates, Property news & information, Reserve Bank of Australia RBA cuts cash rate by 25 basis points to 2.25% in February 2015; The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market In its meeting today the Reserve Bank of Australia have moved to cut interest rates to 2.25% p.a., paving the way for the cheapest home loans in 40 years. The decision was one most experts were predicting, though the majority had pegged it to occur later in the year. Economists still agree a further reduction in rates is likely in 2015, in an effort to buoy our employment figures and continue the economic reset of the post-resources boom era. According to RBA Governor Glenn Stevens, the Board has “taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad.” Stevens says the cut is expected to add some further support to demand, “to foster sustainable growth and inflation outcomes consistent with the target,” citing modest income growth and the Australian dollar, which fell steeply in the wake of the RBA’s announcement. Political instability may also factor into the decision, with confidence waning in some areas of the economy as Canberra sees increased leadership speculation. The Reserve Bank has to strike a balance between economic growth and growth that risks overstimulating the housing market. Read the full decision notes Read more: Rates tipped to decrease in 2015 House in SA Experts missed the early mark “Lower mortgage rates have the potential to add some fuel to what are already strong housing market conditions,” says RP Data’s Tim Lawless. Lawless says the cut could see the standard variable mortgage rate fall to 5.7% and discounted variable rates to 4.85% – the cheapest home loans since July 1968. Dwelling values Australia’s capital cities have increased by 19.6% since rates began their downward trend in November 2011. “Lower consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015.” finder.com.au spokesperson Michelle Hutchinson agrees today’s cut was quicker than anticipated. “28 of the 30 leading economists and experts from the finder.com.au Reserve Bank Survey got it wrong, as they were forecasting no change today,” she says. “There is still a chance we’ll see the Reserve Bank lift the cash rate, with 16 of 30 experts expecting to see a rise within the next 18 months.” Will lenders pass it on? “We hope lenders will pass on the full rate cuts and more to their variable rate home loan customers because there’s no excuse not to pass on the full cuts,” says Hutchinson. Bank of Queensland has already announced it will lower rates in line with the news. Richmond homes Melbourne Housing market starting strong The RP Data Home Value Index has capital city dwelling values rising by 1.3% during January, suggesting a solid overall start for the 2015 housing market, driven by Melbourne, Sydney and Hobart performance. Melbourne values were up 2.7% for January, Sydney values increased by 1.4% and Hobart property values were up 1.6%. Highlights over 3 months to January 2015 •Best performing capital city: Hobart +4.4% •Weakest performing capital city: Darwin -2.6% •Highest rental yields: Darwin houses with gross rental yield of 6% and Darwin Units at 5.9% •Lowest rental yields: Melbourne houses with gross rental yield of 3.2% and Melbourne units at 4.2% •Most expensive city: Sydney with a median dwelling price of $723,000 •Most affordable city: Hobart with a median dwelling price of $341,000 Follow us on Twitter for more news, tips and inspiration. Become our chum on Facebook and explore our Pinterest boards. Like this article or found it helpful? Share it! ============================== Westpac has cut its SVR by 0.28 percentage points to 5.7 per cent, its level lowest since 2009. claimed the banks would only pass on 0.15%. Hoofarted said the banks wouldn't pass it on. And there were also heaps of idiots on Macrobusiness claiming the RBA rate cuts would be ineffective because banks wouldn't pass it on. I'm with Westpac. Looking forward to my 0.28% discount... that's worth several thousand dollars a year to me. It's like getting a 5% pay raise. why has Private House building been falling for nine months? Perhaps the RBA wants to stimulate construction? Meanwhile in reality most home owners with a mortgage just got $75 a month pay rise in all effect. With perhaps two more cuts to come home owners with a mortgage could be saving over $2200 a year in interest. That alone pays for a lot of food. ===== Markets Live: Stocks defy gravity DateFebruary 6, 2015 - 10:28AM 368 reading now Comments 32 Read later Patrick Commins, Jens Meyer The local sharemarket is continuing its stunning rally, putting the ASX200 on track for an unprecedented 12th day of gains, as investors await the RBA's statement on monetary policy. . submit to reddit Email article Print Reprints & permissions . Sort posts by: Latest Oldest Most liked Most disliked . Live article connection interrupted. Please refresh your browser 10:40am: Virgin Australia has posted a $55.3 million pre-tax profit in the second quarter of this financial year as it benefits from a truce in its battle with Qantas in the domestic air-travel market and cheaper jet fuel. While the airline is not due to report its half-year results until February 19, the release of the quarterly figures means that Virgin posted a profit of $10.3 million for the second half, compared with a $49.7 million loss previously. Low-cost carrier Tigerair Australia, which had been a drag on Virgin's financial results, reported a $500,000 profit in the second quarter, up from a $15.5 million loss in the first quarter. Virgin on Friday said it had completed its acquisition of the 40 per cent of Tigerair that it had not already owned, which clears the way for Tigerair to consider launching international flights. Virgin now reports quarterly results because shareholder Singapore Airlines, which reports later on Friday, is required to equity account for its stake in the Australian carrier. Virgin reported a second quarter pretax underlying profit of $55.3 million after having reported a $45 million underlying pretax loss in the first quarter. The airline had advised at its annual meeting in November that it would be profitable in the second quarter, but it had not said whether its first-half would be profitable. Rival Qantas has forecast a first-half pretax underlying profit of $300 million to $350 million driven primarily by cost-cutting but also aided by a fall in the oil price, the removal of the carbon tax and improved market conditions. Virgin said it received a $7 million benefit from falling fuel prices in the second quarter, which compares to the first-half benefit of $30 million forecast by Qantas. But both airlines are expected to benefit substantially from the oil price fall in the second half of the financial year. Virgin shares are up 3.4 per cent at 46 cents, while Qantas has dropped 1.2 per cent to $2.47, after the oil price jumped overnight. Virgin recorded a pre-tax profit in the second quarter, which includes the busy Christmas holiday travel period. Virgin recorded a pre-tax profit in the second quarter, which includes the busy Christmas holiday travel period. Photo: Patrick Scala Upvotes:0 Downvotes:0 Copy Link . 10:27am: The local sharemarket is continuing its stunning rally, putting the ASX200 on track for an unprecedented 12th day of gains. The benchmark index is up 25.5 points, or 0.4 per cent, at 5836.5, while the broader All Ords has gained 24.0 points, or 0.4 per cent, to 5789.5. Among the sectors, energy is up 1.2 per cent after a strong rise in the oil price overnight, materials have added 0.7 per cent and financials are up another 0.4 per cent. Upvotes:2 Downvotes:2 Copy Link . 10:05am: The NAB chief's star is shining bright, writes BusinessDay columnist Adele Ferguson: Five months into the top job NAB boss Andrew Thorburn is showing all the signs of pulling off what his predecessors failed to do: focus on the bank's strengths and deal with its problematic overseas and domestic business banking operations. The release of $1.65 billion cash profit, up 6 per cent on the previous corresponding December quarter, puts the bank on track to join the other big four banks and deliver a record profit in 2015. The solid result will also help it feed the dividend monster, which is dominating the minds and portfolios of investors in the hunt for investments that offer them a decent return in a low interest rate environment. The big four banks will pay out an estimated $23 billion in dividends to shareholders in 2015. Its latest quarterly results show that bad and doubtful debts are falling, asset quality is improving, its troubled British banking assets reported a small profit and group revenue is rising. Most importantly, the accompanying commentary from Mr Thorburn shows he and his new team are committed to closing the performance gap between the big four banks. To put it another way, Mr Thorburn has done more at NAB in the past five months than the former chief executive Cameron Clyne did in five years. As soon as he took the job he announced a spin-off and listing of its US bank Great Western Bank, overhauled the senior management team and sold £1.2 billion of higher risk loans from its British commercial real estate portfolio. The property portfolio is now sitting at £800 million compared with £5.6 billion in October 2012. If he can extricate the bank from Britain, and deal with other problem areas including its specialised group of assets, its shares and return on equity will immediately bounce. Read more. Andrew Thorburn has done more at NAB in the past five months than the former chief executive Cameron Clyne did in five years, says Adele Ferguson. Andrew Thorburn has done more at NAB in the past five months than the former chief executive Cameron Clyne did in five years, says Adele Ferguson. Photo: Josh Robenstone Upvotes:1 Downvotes:0 Copy Link . 9:49am: Denmark's central bank cut its benchmark rate for a fourth time this year as it steps up efforts to fight back capital flows that threaten to strengthen the krone beyond the confines of its euro peg. The central bank lowered the deposit rate to minus 0.75 per cent from minus 0.5 per cent, it said today. It left its lending rate at 0.05 per cent. "The fixed exchange rate policy is an indispensable element of economic policy in Denmark - and has been so since 1982," Governor Lars Rohde said in the statement. "Danmarks Nationalbank has the necessary instruments to defend the fixed exchange rate policy for as long as it takes." Denmark has resorted to an unprecedented palette of measures to prevent the krone appreciating, including raising foreign reserves by a record $US16.3 billion last month to about 30 per cent of gross domestic product and suspending government bond sales to drive down longer yields. Speculation against the bank's ability to preserve its currency regime grew after the Swiss National Bank abandoned its euro cap last month. "There is no upper limit to the size of the foreign exchange reserve," Rohde said. "The sole purpose of the monetary policy instruments is maintaining a stable krone exchange rate against the euro. The revenue of Danmarks Nationalbank is positively affected by the increase of the foreign exchange reserves." The measures have driven down Danish yields, forcing banks to rethink their operations as they struggle to adjust to negative rates. The country's mortgage banks are meeting with the government today to discuss a potential unified industry response to the rate climate. Yields on Danish government bonds are negative for all maturities as long as five years, while mortgage bond yields trade below zero for maturities as long as three years. Denmark, one of only four AAA rated nations left in the European Union, rejected euro membership in a 2000 referendum. The central bank has since defended the krone's peg to the euro, and before that to the deutschmark, starting in 1982. Upvotes:0 Downvotes:1 Copy Link . 9:42am: American investors are snapping up local equities in droves on the Australian dollar's weakness and greenback's strength, investment experts say. Citi's co-head of equities in Australia and New Zealand, Adam Lavis, said that over the past three weeks there has been a "substantial" increase in the amount of foreign money being invested in the Australian stock market. "We are seeing constant every day inflows. There is general global interest but it is predominantly from the United States." He said that while he could not reveal the exact boost in funds flowing into Australia via Citi's equities team, the bulk of money was being invested in listed real estate with high yields as well as health and mining companies with US dollar earnings. Since the start of this year, Australian equities have outperformed US stocks with a 6.3 per cent gain for the benchmark S&P/ASX 200 versus a fall of 0.8 per cent for the US S&P 500 index. It's a different story to what we saw last year, with the local benchmark up just 1.2 per cent and the main US index finishing 11.4 per cent stronger. While in local currency terms, many Australian stocks have rallied this year, in US dollar terms the gains haven't been as high. "What we have seen is a prolonged period of underperformance of Australia against the US, and we are starting to see that reverse. "The whole market in US dollar terms has become about 20 per cent cheaper because of the weaker currency," he said. The local currency was trading around US93¢ at the start of September but its descent accelerated over the December quarter as the US economy strengthened and attention turned to disappointing growth in Australia. "We are seeing a lot more interest from offshore investors and that will continue to see with [Tuesday's Reserve Bank] rate cut and as the Australian dollar slips below US77¢", said Mr Lavis. The Citi house view is that the Australian dollar will fall to US70¢ in 12 months' time. Read more. Citi's co-head of equities in Australia and New Zealand, Adam Lavis, said that over the past three weeks there has been a "substantial" increase in the amount of foreign money being invested in the Australian stock market. Citi's co-head of equities in Australia and New Zealand, Adam Lavis, said that over the past three weeks there has been a "substantial" increase in the amount of foreign money being invested in the Australian stock market. Photo: Louie Douvis Upvotes:8 Downvotes:0 Copy Link . 9:35am: The CEO of OzForex Group has announced he will step down after seven and a half years in the job, with the currency exchange business now on a “global search” for a new boss. CEO Neil Helm said in a statement to the ASX: “Following the successful IPO in 2013 and the company's first year of operation as an independent, listed entity and with the company in such great shape I feel the time is right for me to make a lifestyle change and spend more time with my family”. There was no departure date in the release and Helm said that he will assist the company to find his replacement. Upvotes:1 Downvotes:0 Copy Link . 9:20am: Prime Minister Alexis Tsipras is preparing to set out the most detailed account yet of his plans to revive the Greek economy after a diplomatic push ended with a rebuff from Germany and a warning shot from the European Central Bank. Tsipras was greeted by the rare sight of a pro-government demonstration in downtown Athens on Thursday night after he vowed to stick to his anti-bailout campaign pledges, despite their rejection by German Finance Minister Wolfgang Schaeuble. The prime minister will lay out his policy plans on Sunday, in the opening speech of the three-day-long parliamentary debate leading up to a confidence vote to confirm his government. Ministers met in Athens on Thursday to discuss the policy program and may reconvene on Saturday to assess Finance Minister Yanis Varoufakis’s feedback from his meeting with Schaeuble in Berlin. The first direct talks between Greece and Germany since Tsipras took power yielded no agreement on how to narrow their differences over Tsipras’s determination to end the German-led austerity regime. “We agreed to disagree” Schaeuble said after meeting Varoufakis on Thursday. “We didn’t even agree to disagree from where I’m standing,” the Greek responded. A few hours before the Berlin encounter, the ECB heaped pressure on Tsipras by restricting Greek access to its direct liquidity lines, citing concerns about the country’s commitment to existing bailout pledges. The Greek government opted to “stop cooperating with the troika,” ECB Governing Council member Jens Weidmann said in a speech in Venice on Thursday. The move leaves Greek banks reliant on 59.5 billion euros ($US68.3 billion) of emergency liquidity assistance, extended by the Bank of Greece, which is subject to review by the ECB Governing Council every two weeks. Undeterred by the ECB reaction, which triggered a sell-off in Greek bank shares, Tsipras told lawmakers from his party, Syriza, that he intends to stick to his campaign promises. “The government will negotiate hard for the first time in years, and will put a final end to the troika and its policies,” Tsipras said. Awkward: Greece's finance minister Yanis Varoufakis, right, and Wolfgang Schaeuble. Awkward: Greece's finance minister Yanis Varoufakis, right, and Wolfgang Schaeuble. Photo: Bloomberg Upvotes:0 Downvotes:0 Copy Link . 9:15am: US stocks climbed, with benchmark indexes erasing declines for the year, as oil resumed a rebound and Pfizer announced a $US17 billion deal. Denbury Resources and Noble Corp jumped more than 3.7 per cent as oil climbed 4.7 per cent. Pfizer added 2.9 per cent as it agreed to buy Hospira, the biggest provider of injectable drugs and infusion technology. Hospira jumped 35 per cent. The Standard & Poor’s 500 Index added 1 per cent to 2,062.5. The Dow Jones Industrial Average rose 211.9 points, or 1.2 per cent, to 17,884.9. The Russell 2000 Index surged 1.5 per cent. “Right now it’s earnings, Greece and M&A,” Krishna Memani, chief investment officer at Oppenheimer Funds, said. “It’s more about the corporate outlook in the US remaining good and the realisation that while the Greek issue is important, it will eventually be resolved.” Data showed fewer Americans than forecast filed jobless claims last week. Tonight’s jobs report from the Labor Department is predicted to show non-farm payrolls rose by 230,000 last month, while the unemployment rate remained at 5.6 per cent. A separate report showed the US trade deficit increased unexpectedly in December to a two-year high on a pickup in imports of motor vehicles and fewer shipments overseas, showing US demand is holding up as global economies cool. “Obviously Europe matters but what’s a little more important is what’s happening domestically,” Jerry Villella, a global investment specialist at JP Morgan Private Bank, said. “We’re about halfway through earnings season and with the exception of energy and financials, it’s been mostly a good story.” Upvotes:0 Downvotes:2 Copy Link . 9:04am: Local shares are poised to open higher on a positive lead from Wall Street as oil bounced higher and ahead of the latest RBA's policy statement. Here’s what you need2know: • SPI futures up 39pts, or 0.7%, at 5794 • AUD at 78 US cents, 91.87 Japanese yen, 68.09 Euro cents and 51.01 British pence. • On Wall St, S&P 500 +1%, Dow +1.2%, Nasdaq +1% • In Europe, Stoxx 50 -0.2%, FTSE +0.1%, CAC +0.2%, DAX -0.1% • Spot gold down $US2.89 or 0.2% to $US1266.46 an ounce • Brent oil up $US2.33 or 4.3% to $US56.49 per barrel • Iron ore down 94 US cents, or 1.5%, to $US61.64 What's on today: • Australia: RBA Statement on Monetary Policy at 11:30 AEDT • US non-farm payrolls, unemployment rate at 12:30am • Germany: industrial production • UK: trade balance • Canada: building permits, unemployment Stocks to watch: • Royal Wolf Holdings, Energy Resources profit results • Boral cut to neutral at JP Morgan • Brambles cut to hold at CIMB • Fletcher Building cut to underweight • Monadelphous cut to hold at Morningstar • Qantas cut to sell at M’star • REA Group raised to buy v underperform at BBY; cut to neutral at UBS and Credit Suisse • SCA Property Group cut to underweight at CBA • Seven West cut to neutral at Goldies • Stockland raised to overweight at CBA • Tabcorp cut to neutral at Credit Suisse ; shares remain in trading halt • Toll cut to reduce at CIMB . Read more: http://www.smh.com.au/business/markets-live/markets-live-stocks-defy-gravity-20150206-3plr9.html#ixzz3QuxQpNtv ========