"RBA slashes interest rates by 50 basis points"

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RATES SLASHED!!

THE Reserve Bank of Australia (RBA) has provided huge relief for struggling homeowners and retailers, slashing interest rates by 50 basis points.   

The cut is the first since December 2011 and takes the official cash rate to 3.75 per cent, from 4.25 per cent.

The rate cut, widely predicted by economists, is likely to ease financial pressure on thousands of households across Australia, with average mortgage holders likely to benefit by about $1000 annually if the banks pass it on.

However economists believe it unlikely that all lenders will pass on all the savings.
Treasurer Wayne Swan once again warned the banks to pass on the rate cut.

“Let’s be very clear, this is a cut of 50 basis points and will be a significant benefit not just to homeowners but also to small business,” he said.

“Everybody has been hanging out for this rate cut and now it is here and people want to feel it in their pocket.”

If the banks do not pass on the rate cut Mr Swan encouraged customers to walk down the road and get a better deal.

“This is a very big move from the Reserve Bank – they haven’t moved rates this far since the depths of the Global Financial Crisis," said RateCity.com.au CEO Damian Smith.

“The signals from the big four banks suggest that they will try to hold on to part of this rate cut. Of the 50 basis point cash rate reduction from the RBA since November (2011), the big four banks have only passed on around 40 basis points to variable rate home loan customers.”

RBA governor Glenn Stevens said that a lower inflation outlook provided the scope to cut the cash rate and to help stimulate the economy.

"This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated," Mr Stevens said.

"In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years."

Unions, business groups and retailers have been pushing for a hefty rate cut of as much as 50 basis points, saying economic conditions supported it and would help to revive the retail sector by boosting consumer spending.

Last week, speculation of a reduction in the 4.25 per cent RBA cash rate intensified after the much lower than expected consumer price index (CPI) showing inflation was under control.

The Housing Industry Association had also called on the Reserve to deliver a 50 basis point cut after a survey showed new home sales had fallen to their lowest level in more than a decade.

Most economists expect further rate cuts to follow today’s decision, with 10 out of 16 economists surveyed by AAP saying the RBA would cut again in June. Two even said the RBA would cut three times in 2012.

All eyes will now turn to the big four banks to see if they will pass on the savings.
Commonwealth Bank chief economist Michael Blythe said the 50 basis point cut would lift consumer confidence.

"I think it has provided a circuit breaker for the negative feedback loop of consumer confidence that has been coming through," he said.

He said the decision to cut by more than the standard 25 basis points would ensure lower borrowing rates for consumers, even if commercial banks didn't pass on the full rate cut.

"It looks like a little bit like they are getting it all over in one hit and guaranteeing that, whatever banks may do, you still get a net easing in conditions."

He said the RBA still had plenty of room to cut rates further in the coming months if necessary.

This information was gathered from:
http://www.news.com.au/money/interest-rates/rba-slashes-interest-rates-50-basis-points/story-e6frfmn0-1226343674156

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