RBA Decision - May 2013

May 08, 2013
Alan Madden

Official cash rate reaches record lows

The Reserve Bank of Australia’s (RBA) decision this month to cut the official rate to 2.75% takes the cash rate to a record low since reporting began in the 1990s. The announcement should provide much needed relief for many Australian households and boost activity in the property and retail sectors.The RBA takes many factors into consideration when deciding whether to cut the cash rate, but this month’s decision was very likely influenced by the unexpected rise in unemployment, from 5.4% in February to 5.6% in March. However, it is unlikely that the Reserve Bank acted to cut the cash rate on one month’s employment figures alone. There are a number of other factors at play in the decision.Inflation has been sitting at the lower end of the Reserve Bank’s target band of two to three percent for some time, providing room to move the cash rate. At the same time, the high Australian dollar has affected our terms of trade and made things tough for exporters, and there is hesitation forming around the looming federal budget. Couple all that with recent reports of falling property values, and it appears the RBA took the opportunity to cut the cash rate to help stimulate the economy.Retailers will be rejoicing in the hope that the rate cut is passed on by lenders and helps to increase discretionary spending. However, for many mortgage holders, the cut will likely represent a real cost saving.This is a great opportunity to use any savings to contribute more to your loan, not only will you repay the debt sooner and build up more equity, but you will also have in place a good financial buffer for times of need or alternatively if you need a new loan to purchase a property now is a great time to buy.If you would like to discuss how you can make the most of the rate cut, please feel free to contact me at any time.

Posted in: Interest rates

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