Home Loan Rate Cut Hopes Dim

The prospect of cheaper home loan rates within a week diminished yesterday.

Economists analysing the impact of the US Federal Reserve's rate cut, which was less than the expected quarter of a percentage point, meant the pressure was no longer on Reserve Bank of Australia governor Ian Macfarlane to reduce Australian interest rates immediately.

Instead, the Reserve Bank board might elect at next Tuesday's meeting to delay a rate cut if they think it could motivate Australians to resume borrowing heavily to buy property.

ANZ chief economist Saul Eslake said yesterday the Reserve Bank would hope that people would not act on an interest cut.

``One of the things the Reserve Bank has cited as a reason not to cut interest rates up to this point is concern about people thinking the party is on again, and going and borrowing," he said.

Commsec senior analyst Craig James said: ``What an immediate interest rate cut could end up doing is just reinvigorate the housing boom, and that is something the Reserve Bank would be keen to avoid."

Australians have borrowed heavily during a decade of falling interest rates that has pushed up house prices and made buying a home less affordable.

The good news for Victorians is they were more able than people in other states to afford a home in the March quarter, according to the latest data from AMP and the Real Estate Institute of Australia.

Housing prices rose 3.6 per cent during the quarter, but so did weekly family income, and average monthly loan repayments dropped 2.9 per cent.

Earlier this month lenders tempted borrowers to lock in an interest rate for up to 10 years in the face of forecast economic growth and eventual rate rises.

Banks and non-bank lenders cut fixed interest rates on mortgages after bond rates fell, fuelled by expectations that the US Federal Reserve would cut rates by half a percentage point.

A cut of that size failed to eventuate yesterday and in response interest rates on bonds rose.

Mr James said that if bond rates remained at higher levels, lenders could increase fixed interest on mortgages just weeks after reducing the rates.

Although yesterday's US move would have disappointed financial markets hoping for a more decisive cut of half a percentage point, Treasurer Peter Costello said it was good news for Australia.

``Until we see a return to sustainable growth by the American economy, which will fire global growth, it is going to be hard for exporters around the world," Mr Costello said.