The Reserve Bank of Australia has cut the cash rate to 1.25 per cent, a day after CoreLogic data revealed Perth house prices continue to fall more sharply than other state capitals.
The 0.25 per cent cut was the RBA’s first change in the cash rate since August 2016, which was already at historical lows.
RBA governor Philip Lowe said the cut was a result of weak economic data, primarily unemployment and inflation.
“The board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” he said.
Dr Lowe said the rate cut would also support a rebound in the country’s housing market.
“The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities,” he said.
“Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased.”
Data released by CoreLogic yesterday revealed the median house price nationally fell by 0.4 per cent in the month of May; the pace of monthly declines has slowed progressively from 1.3 per cent nationally in December.
In contrast, Perth's median house price fell 1 per cent fall for the month of May, the largest fall among state capitals.
Perth's median house price has fallen 8.8 per cent during the past 12 months.
AMP Capital chief economist Shane Oliver said the rate cut in combination with other factors could spark a resurgence in house prices.
“The combination of RBA rate cuts, support for first home buyers via the First Home Loan Deposit Scheme, the relaxation of the 7 per cent mortgage rate serviceability test and the removal of the threat to negative gearing and the capital gains tax discount following the coalition’s federal election victory point to house prices bottoming out by year end and at higher levels than we had been previously expecting,” he said.
The Urban Development Institute of Australia WA chief executive Tanya Steinbeck said the interest rate cut as was a timely move that would benefit the struggling Western Australian property market.
“WA has been wearing the pain of monetary policy decisions made to address economic and market conditions on the east coast for too long,” she said.
“With our property market needing further stimulus to get going, this move by the RBA needs to be followed through by the big banks.”
In the hours following the RBA announcement, ANZ Banking Group said it would reduce variable rates by 0.18 percentage point, while the Commonwealth Bank of Australia said it would pass on the full rate cut from June 25.