It is an old but true adage, and when it comes to Australian interest rates, every homeowner and investor is happy to see it occur once again.
At their meeting on Tuesday 2nd September, the Reserve Bank of Australia decided to reduce the official interest rate by 0.25%, the first reduction in seven years.
After lifting rates over the past twelve months to combat rising inflation and accelerating growth, the desired slow down in the Australian economy and other global markets has allowed the RBA to provide the first reduction, and most likely not the last.
Many commentators had been hoping for a larger reduction, but a cautious approach has been adopted which may well allow a further reduction before year’s end.
This is welcome news to an Australian property market that had been on pause over the past few months as they waited patiently for a sign in the easing of interest rates down under.
Confidence is sure to return shortly, particularly if another rate cut becomes a reality, and the strong rental market and continued shortage of new buildings will undoubtedly drive a strong lift in prices across Australia in the last few months of this year and into 2009.
The drop in the rate has also contributed to the falling Australian dollar which has hurt many offshore based investors that had been lured into the “cheap” interest rates on offer in other currencies.
Many now face margin calls and significantly higher finance costs due to the currency correction, highlighting the fact that you need to be very mindful of the true cost of borrowing, not just the rate when you take a multi currency facility.
For those who have been patiently waiting for the correction, a significant windfall can be expected, but caution needs to remain in the short term at least.
The Australian economy remains in good shape, and the correcting dollar will be welcomed by exporters and expatriates which will underpin the economy in the coming months despite a continuing global slow down.
Sensibility is starting to return to the world markets after a year of great turbulence, and although we are not yet out of the volatile cycles, there is definitely light at the end of a long tunnel ahead.
