RBA is open to cutting interest rate in August, RBNZ seeks more restrictions on home loans

The May interest rate cut by the Reserve Bank of Australia (RBA) to 1.75 percent boosted the country’s construction sector in June. All bank’s eyes are on the RBA again in August if the central bank would cut the key lending rate anew.

The Australian Financial Review reports that RBA is open to the possibility of another rate cut next month, depending on fresh information on inflation, jobs and the property market. Minutes of the last RBA board meeting, published on Tuesday, state that the information the board would get would refine their assessment of the growth outlook and inflation.

That would be key in making any adjustment to the board’s stance of policy appropriate, the RBA said in the minutes. A possible trigger to further reducing the benchmark lending rate to 1.5 percent at the Aug 2 meeting is the second quarter inflation report which policy makers think would likely be below the 2-3 percent target based on subdued wages growth and downward price pressures on a global scale.

The chance of an Aug 2 rate cut to 1.5 percent is placed by the financial market at 60 percent.

Meanwhile, ABC reports that the Reserve Bank of New Zealand (RBNZ) released on Tuesday a consultation paper which would place more restrictions on home loans which would make other regions in the country on the same page as Auckland. The changes place a 5 percent cap on bank lending to residential property investors across New Zealand.

The loan-to-value ratio must be more than 60 percent or the deposit less than 40 percent. The rationale behind the proposed change is that borrowers who have less than 20 percent deposit are often stretching their financial resources.

RBNZ explains, “A severe downturn in house prices could have major implications for the banking system, with more than 55 percent of bank assets secured by residential property.”

VIDEO: RBA Interest Rate Decision / 2016-07-05