Official cash rate reaches record lows

May 07, 2013
Jay Stewart

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.

If you are a property owner this is a great opportunity to use the 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.

Keep in mind it isn’t just retailers and mortgage holders who stand to benefit from the rate cut. If you’re considering getting into the property market this may give you the reassurance you need to make your move sooner rather than later.

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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