RBA cuts cash rate to 2.5%

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The RBA has just announced a 25 basis point cash rate reduction, bringing the official interest rate down to a record low 2.5%.

Today’s announcement mirrors Bloomberg’s survey of 26 economists, 25 of which anticipated the cut.

A speech made late last week by RBA governor, Glenn Stevens, also indicated another rate reduction was on the cards, with Stevens admitting the RBA was becoming increasingly concerned about major areas of the Australian economy, particularly the passing of  mining and credit growth ‘booms’.

Stevens said that while globally financial conditions remain very "accommodative", the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in sovereign bond yields, from exceptionally low levels. Volatility in financial markets has increased and has affected a number of emerging market economies in particular.

He hopes that the depreciation of the exchange rate over time would help to foster a rebalancing of growth in the economy.

The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.

  • Innocent Observer on 6/08/2013 5:52:44 PM

    To be fair, if the Libs were in power they'd be turning the same spin that Labour is (and vice versa). They are as bad as each other.

    It would, however, be nice if government understood that it's not spending (in and of itself) that we need to stimulate.

    We have a problem of high household debt, the rise of which has tracked property prices in a textbook example of "the greater fool".

    In this economic environment monetary policy is largely ineffective and causes just as many problems as it helps.

    Remember that monetary policy is most effective when applied to real savings, not debt.

    In this environment fiscal policy is more effective. For example, instead of adding fuel to the private-debt fire (exacerbating the problem), why now abolish payroll tax?? Make it easier to hire & fire?? (and to any bleeding hearts out there -- good staff will always have a job; we should have the right to get rid of those that aren't so good who we perhaps took on in good faith).

    At any rate. Over the coming months the real estate lobby groups are going to be out there advertising hard with their "record low interest rate" slogans. I would encourage all advisers out there to take the time to explain to their clients the reason for the rate cuts, the state of the economy and (perhaps most importantly) protect them from making the mistake that the real estate marketeers are banking on. In many cases we are going to be the only ones between young homebuyers making a very poor financial decisions. I hope that in 5 or 10 years we can all look back in good conscience knowing we did everything possible to lead our clients onto the right path.

  • Noel on 6/08/2013 4:22:26 PM

    Labour wastefulness hasn't helped this situation, no argument from me. But I wouldn't get too concerned with rising property prices. As the previous comments suggest, we're on the brink right now. These are emergency level interest rates. People's jobs are at stake here and we haven't even begun to see the real unemployment number yet. You want to punt on property prices.., good luck to you, but you'll need eyes in the back of head for the next 2 or 3 years, we're about to see what happens when the economy gets REALLY tested. No prisoners this time. Never seen property prices fall ? Stay tuned.

  • gf in Brisbane on 6/08/2013 3:22:07 PM

    If labor get back in don't be surprised if we get 2 more cuts in 2014, because business wont have any confidence in a labor gov, thus will not commit to any significant new investment & spending!! Business is tied of the continual spin so is not spending! Business creates the jobs!!!! Not Government who employ unproductive staff!!!

  • Leo on 6/08/2013 3:17:08 PM

    the problem is that this is pushing up property prices, making them even less affordable and increasing the likelyhood of a crash even greater, when things turn around

  • Fedup on 6/08/2013 3:03:33 PM

    Labor Spin - Under Labor the RBA has been able to drop interest rates to a historical low (Because the RBA is just looking for an excuse to lower interest rates).
    Reality - Labor incompetence has pushed the economy to the brink of collapse and they have wasted all the reserves we could draw on to smooth out the cycle, leaving the RBA to drop interest rates to 2.5% or 2% after the bank levy (Tax).

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