THE RESERVE Bank of Australia has dropped the official cash rate by 25 basis points to a new low of 2.5 per cent.
Numerous sources believe the cut — taking interest rates to their lowest level since 1960 — has been made by the RBA in an effort to boost local spending and consumer confidence.
The interest rate cut will save Australians around $45 on the monthly repayments of an average $300,000 home loan.
“The Board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand,” RBA Governor Glenn Stevens said.
“At today’s meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate.”
Three of the big four banks — NAB, Commonwealth and Westpac — have agreed to pass on the interest rate cut in full.
The last remaining member of the ‘big four’ — ANZ — will make a decision on the rate cut when their board meets on Friday.
News.com.au reports Westpac have gone beyond the RBA’s reduction and cut its standard variable rate by 0.28 per cent, effective 19 August.
The rate cut has also been seen as a boost for the Labor Government in the wake of Prime Minister Kevin Rudd announcing the federal election on Sunday for 7 September.
“The fact is that now, under Labor, interest rates are at record lows,” Treasurer Chris Bowen said.
“Australian families and businesses know that lower interest rates are a good thing, especially with the economy continuing to grow.
“This cut means that a family with a standard mortgage of $300,000 will now be paying around $500 less a month and $6,000 less in annual payments than when the coalition was last in office,” Mr Bowen said.
Despite also welcoming the cut, Opposition treasurer Joe Hockey believes the cut is a sign of a weakening Australian economy and growing fears of higher unemployment.
“This interest rate cut is about a struggling economy under Kevin Rudd,” Mr Hockey said.
“It’s not a great credit to this Government at all, in fact the concern is that we are heading in the wrong direction whilst the rest of the world is heading in the right direction in relation to economic growth and employment.”