RBA cuts cash rate to new record low

A man walks past the RBA sign in Sydney. Picture: Brendon Thorne/Getty Images
A man walks past the RBA sign in Sydney. Picture: Brendon Thorne/Getty Images

THE Reserve Bank of Australia (RBA) has cut the cash rate to a new record low.

The Reserve Bank lowered the rate to 1.25 per cent on Tuesday, in an effort to keep the economy humming by helping more Australians find jobs while controlling inflation.

The rate, which reflects what the central bank charges commercial banks on overnight loans and influences other interest rates, has sat at a record low of 1.5 per cent since August 2016.

RBA governor Philip Lowe said the raid cuts would help reduce unemployment.

“Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy,” he said.

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

“The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.”

Treasurer Josh Frydenberg met with executives at the four big banks in recent days to urge them to pass on the benefits of a lower rate.

Treasurer Josh Frydenberg. Picture: AAP

Borrowers with an average home loan of $400,000 would save about $58 on their monthly repayments if the cut was fully passed on.

“I expect all banks to pass on the benefits of sustained reductions in funding costs,” the treasurer said.

Mr Frydenberg has also reminded the banks of the recent findings of the banking royal commission, to underline his argument.

“The royal commission highlighted how the culture within financial institutions needed to improve … and how the conduct had fallen below public expectations,” he told The Australian on Tuesday.

Despite the pressure on banks to pass on any RBA cut in full, some experts are sceptical that they will.

The banks are continuing to look for ways to recover lost profit margins, which were eroded by previously high funding costs.

Shadow treasurer Jim Chalmers argues the rate cut must be passed on to fulfill the central banks’ goal of shoring up the economy.

“I think Australians will be absolutely filthy if the banks didn’t pass on the full value of any cut that we might see today. They’ve got no excuse for not doing that,” he told ABC Radio Melbourne.

But Mr Chalmers said banks don’t take Mr Frydenberg particularly seriously.

“They know this is a government that generally goes pretty soft on the banks,” he said.

The property industry was quick to welcome the rate cut with Reiwa and the Urban Development Institute of Australia calling it a win for the  struggling WA property market.