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Reserve Bank Cuts Rate to 3 Per Cent

Reserve Bank Cuts Rate by 25 basis points to 3 per cent.

Reserve Bank Cuts Rate by 25 basis points to 3 per cent.

Official Cash Rate Cut To 3 Per Cent.

The Reserve Bank of Australia (RBA); in its last board meeting for 2012 cut the official cash rate by 25 basis points on Tuesday 4th to 3.00 per cent, effective December 5th.

RBA Governor Glenn Stevens sited the global growth forecast to be below average with uncertainty over America’s fiscal policy, a weak Europe and moderate Chinese expansion as the main reasons for the board’s decision. Australian commodity prices remain lower than earlier in 2012 as a result of a slower world economy, while in Australia resource investment is close to the expected peak.

Commercial building works remain subdued with building of residential dwellings only showing small growth along with an increase in rental yields. Current inflation is at 2.50 per cent but with the effect of the price on carbon emissions already impacting on consumer prices, inflation is expected to rise to 3.00 per cent.

Unemployment is creeping upward putting pressure on labour costs as Australian business looks for ways to improve productivity.

Retail Sector hopes top 4 banks pass on rate cut in full.

If Australia’s biggest four banks; ANZ, Westpac, National Australia Bank and Commonwealth bank do pass on the rate cut to consumers in full, it will equate to a $50 per month saving for people with a $300,000 mortgage. With spiralling electricity and water prices hitting hard, this would be a welcome relief for many and would hopefully give consumers confidence to spend at the shops this Christmas. I do not expect that to happen though.

Every day the top 4 Australian banks do not pass on the interest rate cut, they collectively make $6 Million in profit. Some banks and financial institutions have passed on some of the rate cut; The Bank of Queensland dropped its variable home loan by 20 basis points and ING passed the rate cut on, effective Christmas Eve, to their standard variable rate home loan making the interest rate 5.72 per cent.

The official cash rate at 3 per cent equals the lowest it has been since the 2009 Global Financial Crisis.

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What people have said:

  1. Westpac announced that it will also drop 20 basis points from its standard home loan rate starting December 17 2012 bringing the interest rate down to 6.51 per cent. Westpac said in a statement that they were concerned about the importance of savers. None of the banks have said what deposit rates will drop to however, just that they are under review.
    With ANZ not making their decision until a board meeting on December 14, it is unlikely that any bank will pass on the full rate cut, again!

  2. Commonwealth Bank has just announced that it will be passing on 20 basis points to its standard variable home loan product, making the interest rate 6.4 per cent from December 10 2012. In a statement from Commonwealth Bank today, they said:

    A significant factor impacting this balancing of needs has been the increased competition in the domestic deposit market, which has benefited many customers, including those who rely on interest earnings to meet their living expenses

    Retirees are the main group of people looking at falling interest rates on term deposits.

  3. National Australia Bank has just announced that it will pass on a 20 basis point rate cut to its standard variable home loan rate effective as of December 20 making the rate 6.38 per cent. Rates on variable business loans will also be cut by 20 basis points. NAB also promised to offer the lowest standard variable home loan rate of the top 4 Australian banks until the end of 2012, meaning that ANZ and Commonwealth Bank will need to cut their rates by 23 basis points to offer a cheaper standard variable rate than NAB, which could start an interest rate price war between the major banks.

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