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RBA cuts rates for the first time in 12 months

The Reserve Bank of Australia has stolen the Federal Government’s spotlight, with the Board choosing to cut the official cash rate to a new historical low.


The Reserve Bank of Australia has stolen the Federal Government's spotlight, with the Board choosing to cut the official cash rate to a new historical low.

Just hours before the Federal Government unveiled its 2016 national Budget, the Board decided the time was right to trim the cash rate by 25 basis points, taking it to 1.75%.

According to a statement by the Board, a weak CPI result in the March quarter combined with falling consumer sentiment ultimately provided the Reserve Bank with the incentive they needed to cut the cash rate for the first time in 12 months.

Data from the Australian Bureau of Statistics found CPI fell 0.2% over the March quarter, pushing core inflation down to 1.6%.

Not only was the result well below the RBA's target range of 2 – 3%, but it was the first time since 2008 that there had been a quarterly ‘deflation' result.

In addition to the poor CPI result, data from the Westpac Melbourne Institute of Consumer Sentiment found confidence fell 4% throughout April.

This latest drop in confidence means pessimists now significantly outweigh optimists. Both of these factors combined gave the Reserve Bank all the reason they needed to cut the cash rate.

It now remains to be seen whether or not Australia's lenders choose to follow the Reserve Bank's lead and pass on today's rate cut to borrowers.

If Australia's lenders do choose to pass on the rate cut in full to borrowers, it will help make the cost of borrowing more affordable than ever.

As such, now be the perfect time for those thinking of buying, investing or reviewing their mortgage in the near future, to put the wheels in motion. 

Posted in: Interest rates

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