The Reserve Bank of Australia’s rate cut isn’t having the results RBA governor Glen Stevens was hoping. Banks are reporting a surge in home loan applications while the business sector remains flat.

Business owners appear to be holding off borrowing in hopes of further rate cuts; while home buyers are adding fuel to an already out of control housing market fire.

The RBA is desperate to stimulate business in Australia. To this end it appears another rate cut is on the card with many economists predicting March 3 as the announcement. Many believe this will not be the last cut in interest rates this year. Such speculation, it seems, may only serve to entice the business sector to again hold off borrowing in the hopes of even further rate cuts.

The blow-out in mortgage activity, however, has been described as ‘phenomenal’ by Oracle Lending Solutions managing director Angelo Benedetti. His business claims to have seen a 40 per cent surge in loan inquiries since the last rate cut.

“People are wondering ‘how much lower can they (interest rates) can go?’

“And real estate agents are getting a lot more offers. It’s not just people wanting to save money – it’s people saying now is a good time to buy and they are starting the pre-approval process.”

The joker in the pack is the outrageous unemployment figure. High unemployment is indicative of business uncertainty – employers are afraid to put people on because they are unsure of the immediate future. Perversely, this reticence of business to take out loans, invest and hire has the effect of bringing those fears into reality.

Economists are pointing to interest rates overseas. Countries like Europe, the US, and Japan have interest rates effectively zero, so the Australian economy still has room to move. But whether low interest will be enough to kick start the economy only time will tell.

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