The Monetary Policy Committee (MPC) has voted to cut interest rates by a quarter point to 4% at today’s meeting. Members voted by a majority of five to four in favour of a quarter-point reduction.
The Committee said it “Continues to be vigilant about the extent to which easing pay pressures will feed through to consumer price inflation [CPI].” Twelve-month CPI inflation increased to 3.6 per cent in June and is expected to increase again to 4 per cent in September, before falling back towards the 2 per cent target.
Commenting on the decision, Mark Harris, chief executive of SPF Private Clients, says:
“The fifth quarter-point reduction in a year comes to no surprise and points to a slow and steady pattern in reductions as the Bank wants to be certain that inflation is under control before it takes more drastic action. However, while the Bank is tasked with keeping inflation at 2%, there is an argument that lower interest rates are needed to stimulate the flagging economy.”
“A bolder, half-point reduction would have been welcome, sending out a strong message and helping boost the housing market and wider economy, particularly as the stamp duty concession has now ended.”
“Swap rates continue on a downwards path with lenders reducing mortgage rates in recent weeks. This latest rate reduction was largely expected and has been factored into pricing already. However, it’s not just pricing that is improving as lenders are also broadening policy, including increasing loan-to-income caps and lowering some income requirements, which is boosting affordability.”
“Those looking to take out a new mortgage or refinance in coming months should plan ahead as much as possible, seeking advice from a whole-of-market broker such as SPF Private Clients. Rates can be booked up to several months before you need them so it’s worth doing this for peace of mind. If rates have fallen further by the time you come to take out your mortgage, you should be able to move onto a cheaper deal at that time.
