Another rate cut – with the banks passing on in full – would make a beautiful Melbourne Cup quinella

The move by the Reserve Bank of Australia to cut the cash rate by 25 basis points today is positive news for the real estate industry and combined with other official interest rate drops this year, will have a beneficial impact on the sector.

The collective 75-basis-point drop in the cash rate over May and June has gone some way to improving confidence in the housing sector, but the latest rate cut was necessary in order for the real estate industry to see a sustained improvement in conditions.

This year’s rate cuts have contributed to a significant improvement in housing affordability and allowed households additional capacity to repair their balance sheets, and today’s 25-basis-point cut will only help the situation further.

These drops have gone some way to improving confidence amongst consumers, who have been exercising caution particularly due to the financial situation in the eurozone.

But while this week's 0.25-percentage-point drop in the cash rate is welcome news, more cuts are needed this year.

Last month it appeared likely that the RBA would need to reduce rates by another 25 to 50 basis points before the year’s end, the reasoning being that a pre-emptive measure would kill off evidence of a slowing economy.

Over the last month the softness has continued and the bank has found reasons to adjust its settings, dropping the cash rate by 25 percentage points. But the question now becomes ‘Is that enough?’ And from a property perspective it is not.

More cuts to the cash rate are needed, with the justification being the softness of the inflation figures, and more importantly, the easing in the jobs market.

Inflation remains low rising only 1.2% during the 12 months to June 2012, compared with a rise of 1.6% through the year to March 2012. Underlying inflation is also limited increasing by 0.6% during the second quarter of 2012, taking the annual increase to 1.9%.

Such low results are reflective of a national economy that is entering a slowing phase.