Interest rates slashed to fresh record low of 1.5pc by Reserve Bank

Aug 2016 - News

The Reserve Bank has cut the official interest rate to a fresh low of just 1.5 per cent, in a desperate effort to stoke price growth.

The RBA last cut its overnight cash rate target in May, taking it to 1.75 per cent, following weak consumer price data in the March quarter.

ABS June quarter inflation data, out last Wednesday, showed consumer prices rose just 1 per cent over the past year, with the Reserve Bank’s preferred measure also well below its 2-3 per cent target.

After that release, markets priced the chances of a rate cut as roughly 50-50, but bets had since gone up to a 75 per cent chance of a rate reduction.

The odds were similar when looking at economist forecasts, with 20 of 25 surveyed by Bloomberg expecting a rate cut today.

Most experts expect today’s rate cut to be the last, but about a third of the analysts surveyed by financial comparison website Finder are expecting more cuts, with six out of 41 expecting a trough of 1 per cent or less.

RBA’s rate dilemma

The Reserve Bank sets one cash rate for the nation, but it is simply not appropriate for some states, explains Stephen Long.

Finder’s Graham Cooke said it is important for consumers to re-evaluate their current home loan to make sure their bank is passing on the reduction in full.

“If you had a $300,000 mortgage with an average standard variable rate of 4.93 per cent and manage to get the full discount of 0.25 percentage points off your interest rate, this could pocket you almost $50 per month, or a whopping $16,325 over the life of your loan,” he observed.

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