The consumer response to the latest interest rate cut by the Reserve Bank of Australia (RBA) has been modest and further stimulus is needed, says leading mortgage broker Priority Lending.
Priority Lending Corporate Spokesman Paul Smith said the RBA lowering its cash rate on May 1 by a half percentage point to 3.75 per cent had generated an underwhelming response from consumers.
Mr Smith said Priority Lending’s home loan enquiries had risen five per cent over April, 2012.
“The RBA’s 50 basis points rate reduction was an essential starting point and with most banks passing on a significant amount of the rate cut, mortgage holders have been able to start better combat the rising cost of living ” he said.
“But it looks as if more reductions from the RBA will be needed to make a real impact on the economy, especially in housing and retail.”
“With the situation in Europe deteriorating over the past few weeks again, fresh concerns over the domestic impact of a euro zone collapse will keep consumer confidence reserved and subdued.”
“The RBA has room to take the cash rate down significantly and we expect to see the official rate lowered again at the central bank’s June meeting.
Mr Smith said a recent Priority Lending survey found almost 80 per cent of consumers were using the benefits from the May rate cut to boost their home loan repayments or increase savings.
He said only two per cent of respondents to the online poll were planning to spend the extra cash resulting from the interest rate reduction.
“Further rate cuts are essential to revive struggling sectors such as retail and housing which have been floundering in this two-speed economy,” he said.
Source: Priority Lending
