TURMOIL IN THE WORLD CREDIT MARKETS HAS HAD A DRAMATIC IMPACT… In particular, it has seen the RBA aggressively slash interest rates several times with a 1% cut on October 7, a 0.75% cut on November 4, a 1% cut on December 3 and most recently another 1% cut on February 2, leaving the cash rate at 3.25%.
The four major banks have passed on most of this cut to consumers. Interest rates are now at a 45 year low. CBA and NAB now have a standard variable rate of 5.74% Westpac and ANZ have a standard variable rate of 5.91%. Fully discounted Professional Packs now range between 5.04% and 5.21%
How low the cash rate falls will depend on developments in credit markets. The longer the credit crisis remains at a heightened level, the greater the risk to economic growth and the more likely the RBA needs to make deeper cuts to the cash rate.
At present the major banks are suggesting we are near the trough and are predicting further official cuts by the RBA may see the cash rate at 2.5% by mid 2009, but don’t see it going beyond this. They do, however, believe the low interest cycle will last for an extended period, maybe several years.
We believe that whilst this may all seem unsettling reasonably stable values for mid priced properties, low interest rates and increased rental yields could well open up possibilities. Holding costs for good quality properties in this range are now close to cash neutral and most commentators see little downside for mid price quality.
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