RBA cuts interest rate to record low 1.5pc

RBA Interest rate cuts

The Reserve Bank of Australia has cut the official cash rate to an unprecedented 1.5 per cent to maintain downward pressure on the currency and spur sluggish inflation and business investment.

As was forecast by most analysts, the board lowered the cash rate by 0.25 of a percentage point from 1.75 per cent on Tuesday.

Reserve Bank governor Glenn Stevens said in a statement that “the likelihood of lower interest rates exacerbating risks in the housing market has diminished”.

The RBA statement said supervisory measures have strengthened lending standards in the housing market.

Exciting times for home loan borrowers

Record low interest rates are good news for at least one group – those borrowing money to buy a home are likely to see serious savings, with some providers already slashing interest rates on home loan products.

The last RBA rate cut in May saw 41 lenders pass on the full 0.25% rate reduction to customers, although others gave the rate cut the cold shoulder, passing on only partial cuts.

Rate cut puts $50 a month back in your pocket

Australian property owners with a $300,000 mortgage will save close to $50 a month as a result of the August interest rate cut.

The Commonwealth Bank of Australia immediately said it would pass on just over half the interest rate cut, 13 basis points, but increase its one-year deposit rate by 55 basis points to 3 per cent.

The latest move takes the total cuts since late 2011 – when the terms of trade peaked – to 3.25 percentage points and puts Australia less than two more cuts away from what Reserve Bank officials have suggested is the “zero-bound”, or limit, of traditional monetary policy.

“Treasurer Scott Morrison appeared to lend support to the latest rate cut on Monday when he emphasised the nation faces a “really big challenge” in shaking off low inflation, low wages growth and low levels of business investment, as well as spill overs from a weaker-than-expected US economy.

“I have no doubt that Glenn Stevens… is keenly focused on that.”