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RBA cuts rates in time for Christmas, banks follow suit

The Reserve Bank of Australia (RBA) cut interest rates by 25 basis points yesterday, taking the cash rate down to 4.5 percent in time for the all important Christmas season.

The RBA made the decision to cut rates for the first time in over two years, due to financial volatility in global market, which governor Glenn Stevens said could slow the Australian economy.

“The effects of the recent turmoil on confidence may result in a period of precautionary behaviour by firms and households.”

Stevens said the board had maintained a mildly restrictive stance of monetary policy over the past year, in view of its concerns about inflation.

“With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3 per cent inflation over time,” he added.

Two of the major banks followed the RBA’s lead, with the Commonwealth Bank and Westpac cutting their variable mortgage rates by 0.25 percentage points. The Bank of Queensland also passed on the cut in full.

Westpac’s basic home loan rate now sits at 7.61 percent, and the Commonwealth’s at 7.56 percent.

Retail groups have welcomed the news of the rate cut, as Christmas draws closer and they face yet another subdued retail season. Australian Retailers Association executive director Russell Zimmerman said the move may have saved the retail industry “in the nick of time from a disastrous Christmas.”

“The RBA has made consumer relief from mortgage stress and the soaring cost of living a safe bet, and this will hopefully resonate through the sector, meaning positive things for growth and employment.”

He said that retailers have a long way to go towards long-term economic recovery, but hopes the cut will create a short-term boost for those who’ve been impacted by consumer mortgage stress, rising costs of living and new taxes.

“Hopefully we will see some more consumers walk through doors and populate their trees in readiness for Christmas. The RBA has made the right decision and got the balance right in terms of the economic impact of the cash rate at its current levels,” Zimmerman added.

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Lorna Brett

Lorna Brett

Lorna was Dynamic Business’ Social Web Editor in 2011/12. She’s a social media obsessed journalist, who has a passion for small business. Outside the 9 to 5, you’re likely to find her trawling the web for online bargains, perfecting her amateur photography skills or enjoying one too many cappucinos. You can follow her on <a href="https://twitter.com/#!/dynamicbusiness">Twitter @DynamicBusiness</a>

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