It’s been a long time coming, but the Reserve Bank of Australia has finally cut interest rates to a new record low of 1.25%.

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.25 per cent – https://t.co/SxC27hJ1NL — RBA (@RBAInfo) June 4, 2019

The cash rate had been kept at 1.5% since August 2016, but the RBA has now cut the official cash rate by 25 basis points.

A weakened Australian economy and a slight rise in the unemployment rate has finally pushed the RBA to move on interest rates, according to realestate.com.au Chief Economist Nerida Conisbee.

“There has been some weakness in the Australian economy for some time – in particular inflation has been particularly low (and non-existent in the March quarter), wages have gone nowhere, retail trade has been dismal. Consumers may have been particularly unhappy, but they at least were not particularly worried about their jobs,” says Conisbee.

“The one shining beacon in the Australian economy was very low unemployment and it is likely the RBA was looking out for flow on impacts to the rest of the economy from that. With the flow on impacts not materialising and the unemployment rate rising, they have decided to cut.”

Recent falls in house prices in major capital cities appear to have plateaued according to RBA Governor Philip Lowe.

“…in some markets the rate of price decline has slowed and auction clearance rates have increased,” he says.

“Mortgage rates remain low and there is strong competition for borrowers of high credit quality.”

Cut will help market recover

The rate cut will be welcomed by the property market after sustained price declines in cities such as Sydney and Melbourne in the lead up to last month’s federal election.

“Combined with the Coalition win, no changes to negative gearing, continued easing of finance and the first home buyer low deposit scheme, price growth will be driven,” Conisbee says.

What the rate cut means for you

With wages growth remaining flat for most workers and the cost of living rising, home owners will likely welcome today’s decision by the RBA.

At the moment, a home owner with a $750,000 loan at an average variable rate of 4.91% currently spends around $47,820 annually on mortgage repayments, so an interest cut of 25 basis points would save that same home owner $1359 per year according to Finder.com.

But the big question for most borrowers is will their mortgage repayments now drop?

Ahead of the RBA’s decision today, Treasurer Josh Frydenberg had warned the major bank to pass on the lower cash rates in full to home owners. And given the increased competition in the home loan market following the Financial Services Royal Commission, banks are likely to do so.

But while credit may well become cheaper after today’s decision, Consibee and other experts are warning borrowers against taking on huge mortgages.

“When looking to get a loan, it is important for buyers to take into account how their personal situation can change,” says Conisbee.

Economists predict that the RBA will make at least one more interest rate cut before Christmas, too, with investment bank JP Morgan predicting last week that the central bank would make three more by the end of the year.

This article was originally published as RBA cuts interest rates to record low