Reserve Bank cuts rates to record low, but Canberra market won't feel it

In its decision on Tuesday afternoon, the Reserve Bank board cited below trend growth in the economy and low wage growth in its decision to cut the rate.

The market had largely priced in a second straight 0.25 percentage point cut after Governor Philip Lowe suggested the June reduction would not be enough on its own to boost economic growth.

"Over the year to the March quarter, the Australian economy grew at a below-trend 1.8 per cent. Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices," Dr Lowe said.

Dr Lowe noted the impact on Australia of the US-China trade tariff disputes.

"The uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside," Dr Lowe said.

"The central scenario for the Australian economy remains reasonable, with growth around trend expected. The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income is expected to support spending," he said.

Dr Lowe said it would be a welcome development if wages were to grow, and said the drop will help with the unemployment rate.

"Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy."

"It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target."

Head of research at CoreLogic Cameron Kusher said it was unlikely the cut would have any effect on house prices in Canberra, where new data out this week had prices drop by 0.9 per cent this month, although they are up 1.4 per cent over the last year.

"We got a rate cut last month and we actually saw the market fall slightly in June and the trend has been towards a slowing - still growing but the rate of growth has been slowing - in Canberra," he said.

"At this stage an interest rate cut isn't likely to bring a lot of buyers into the market because borrowers are still being assessed for their ability to pay at 7 per cent."

Mr Kusher said he expected the Canberra market to "bottom out" later this year before entering a period of slow growth, a similar expectation for other markets.

"When we get to interest rates this low a cut doesn't have the same impact as when interest rates are a bit higher," he said, pointing out people are coming to focus on what a cut means for the economy rather than what it may mean for their own mortgage.

"Canberra's probably a bit different because there's higher wages compared to other cities and low unemployment. Certainly in other parts of the country it could start to weigh on people's minds particularly where there's a higher unemployment rate."