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11 August 2008

Reserve Bank flags interest rates cut

Below is an extract from ABC News (11 August 2008):

The Reserve Bank (RBA) has given the biggest signal yet that it is prepared to slash interest rates to avoid a recession.

In its much-anticipated quarterly statement on monetary policy, the central bank today confirmed a rapidly slowing economy.

It also said the threat of inflation, while everpresent, is diminishing.

Financial markets are continuing to price in an interest rates cut of 0.25 per cent perhaps as early as next month's meeting of the Reserve Bank board.

However expectations of a more dramatic reduction of 0.5 per cent in September have been tempered by lingering inflation concerns.

The Australian dollar fell as low as 88.5 US cents after the statement was released to financial markets but had recovered to 88.57 US cents at 12:54pm (AEST).

The key words come in the final paragraph of the statement's executive summary which says the "scope" to move to a "less restrictive stance in the period ahead is increasing."

The 63-page statement added the RBA would "make adjustments as required" to promote sustainable growth consistent with the aim of keeping inflation within the target band of 2 - 3 per cent.

Underlying inflation has been forecast to peak at 5 per cent in the December quarter of 2008, before falling to 3 per cent by June 2010.

The Reserve Bank has also dramatically downgraded its forecasts for economic growth, with non-farm GDP slowing to 1.5 per cent over the next year before picking up to 2.75 per cent over 2010... more >>

It will be interesting to see how the banks respond and how quickly interest rate cuts are passed on to home owners.

Yours in property!

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