RBA cuts cash rate to new record low

Stock image.
Stock image.

THE The Reserve Bank of Australia has cut the cash rate to a new record low of 0.75 per cent, reducing the cost of borrowing for the third time in five months.

The market had largely priced in Tuesday’s 0.25 percentage point cut despite lingering doubts over whether the move will deliver the desired lift in household consumption.

The RBA had reduced the rate in both June and July in an attempt to shake the country out of economic stagnation, holding at 1.0 per cent during August and September as it observed whether the cuts – as well as the federal government’s tax offsets – had flowed through to the economy.

But there have been few signs so far this has had an impact anywhere but the housing market, where prices have shown signs of ballooning again in the major Sydney and Melbourne markets after a two-year downturn.

Unemployment and underemployment continued to climb in August, while retail spending also disappointed as experts suggesting deeper structural reforms or more government-led stimulus was needed to kick-start economic growth that has slowed to its weakest pace since the GFC.

Governor of the Reserve Bank of Australia Dr Philip Lowe. Picture: AAP

In his statement on Tuesday, RBA Governor Philip Lowe said the board decided to cut again in an attempt to eat into that persistent labour market slack.

“The board also took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and inflation outcomes,” Dr Lowe said.

The Australian dollar spiked from 67.47 to 67.61 US cents immediately after the decision before plummeting to 67.36 by 1440 AEST.

WHAT YOU COULD SAVE IF BANKS PASS ON THE FULL RATE CUT:

Repayments on a $500,000 mortgage would drop by $69 a month on average if retail banks fully pass on Tuesday’s 25-basis-point cut in the cash rate.

* Mortgage size: $100,000 – new repayment: $520 – monthly saving: $13
* $200,000 – $1,039 – $28
* $300,000 – $1,559 – $41
* $400,000 – $2,078 – $55
* $500,000 – $2,598 – $69
* $600,000 – $3,118 – $82
* $700,000 – $3,637 – $97
* $800,000 – $4,157 – $110
* $900,000 – $4,676 – $124
* $1,000,000 – $5,196 – $138

Source: ASIC. Figures for 25-year standard variable loan at an average new rate of 3.85 per cent, excluding fees.