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Future rate cuts uncertain
Industry groups appear to be divided in opinion over the prospect of future rate cuts.
Predictions varied somewhat among industry players who issued statements following the RBA's decision yesterday to keep the rate cut unchanged at 3.25%.
At the time of the yesterday's announcement, the RBA stated: "Conditions in global credit markets have improved since November, but sentiment remains fragile".
It added that "significant macroeconomic policy stimulus is being put in place around the world, but it is too soon to see the effects of those measures".
However, the Board did promise to consider its position again at the next meeting.
The wait-and-see approach was applauded by the Housing Industry Association.
"The combination of big rate cuts supported by expansionary spending measures has injected a lot of stimulus into the economy," said Ron Silberberg, managing director of the HIA.
"It makes sense for the Reserve Bank to step back to see how these policy changes impact on the economy."
The REIA said homebuyers may no longer be able to expect the continued cuts in interest rates such as the country has seen since September 2008.
However, the REIA does recommend the government consider extending incentive programs to first homebuyers.
"Given the housing stimulus we have seen over the last three months, the REIA continues to recommend that the Federal Government undertake a comprehensive review of the boost to the FHOG to assess its effectiveness prior to its proposed cessation in June 2009," said Noel Dyett., REIA president.
But not all groups agreed with the REIA's assessment of future cuts. Loan Market Group executive director John Kolenda predicted the RBA will continue to slash rates.
"We don't think the RBA's downward rates cycle is over just yet and we expect the cash rate will fall to around 2% or even lower this year," Kolenda said.
"The RBA still has a lot more room to play with than other central banks around the world."
More rate cuts by the RBA could really help fire up the property market across a broader sector," he added.
Mortgage Choice, on the other hand, didn't come out one way or another in terms of predicting the Board's future actions.
"So where to from here for the RBA? It will be carefully pouring over data received within the next four weeks before deciding whether additional rate cuts are needed to create a further expansionary effect on the economy. In the meantime, it is in a position where it has room to move, unlike some other major economies," it said.
However, spokesperson Kristy Sheppard tipped that the majority of economists are predicting the cash rate to fall to 2.5%.
The MFAA predicted that unemployment will be the key swing factor in future decisions made by the RBA on rate cuts.
"The last official unemployment figures showed a fall in the number of full-time jobs. We can expect that a continued rise in unemployment will put pressure on the Reserve to cut rates again in the coming months," said Phil Naylor, MFAA CEO.
"Increased unemployment has the double whammy of putting current mortgagees under increased pressure to meet their repayments and service their loans. And while our recent research has shown that most people are comfortably meeting their repayments, this is clearly dependent on job security."