DOUBLE RATE CUT HAS BEEN CONFIRMED!
The Reserve Bank of Australia today decided on a double rate cut (50 basis points) lowering the RBA’s cash rate target to 3.75 percent from 4.25 percent which will equal a substantial saving in interest charges on the average home loan.
Now we all continue to hold our breath and wait for the big four banks to pass it on to consumers.
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to lower the cash rate by 50 basis points to 3.75 per cent, effective2 May 2012. This decision is based on information received over the past few months that suggests thateconomic conditions have been somewhat weaker than expected, while inflation has moderated.Growth in the world economy slowed in the second half of 2011, and is likely to continue at a below-trendpace this year. A deep downturn is not occurring at this stage, however, and in fact some forecasters haverecently revised upwards their global growth outlook. Growth in China has moderated, as was intended, andis likely to remain at a more measured and sustainable pace in the future. Conditions in other parts of Asiasoftened in 2011, partly due to natural disasters, but have recently shown some tentative signs of improving.Among the major countries, conditions in Europe remain very difficult, while the United States continues togrow at a moderate pace. Commodity prices have been little changed, at levels below recent peaks but whichare nonetheless still quite high. Australia’s terms of trade similarly peaked about six months ago, thoughthey too remain high.Financial market sentiment has generally improved this year, and capital markets are supplying funding tocorporations and well-rated banks. At the margin, wholesale funding costs have declined over recentmonths, though they remain higher, relative to benchmark rates, than in mid 2011. Market sentimentremains skittish, however, and the tasks of putting European banks and sovereigns onto a sound footing forthe longer term, and of improving Europe’s growth prospects, remain large. Hence Europe will remain apotential source of adverse shocks for some time yet.In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth indomestic demand ran at its fastest pace for four years. Output growth was affected in part by temporaryfactors, but also by the persistently high exchange rate. Considerable structural change is also occurring inthe economy. Labour market conditions softened during 2011, though the rate of unemployment has so farremained little changed at a low level. Recent data for inflation show that after a pick up in the first half oflast year, underlying inflation has declined again, and was a little over 2 per cent over the latest fourquarters. CPI inflation has also declined, from about 3½ per cent to a little over 1½ per cent at the latestreading, as the weather-driven rises in food prices in the first half of last year have, as expected, now beenfully reversed. Over the coming one to two years, and abstracting from the effects of the carbon price,inflation will probably be lower than earlier expected, but still in the 2–3 per cent range.As a result of changes to monetary policy late last year, interest rates for borrowers have been close to theirmedium-term averages over recent months, albeit tending to increase a little as lenders passed on the highercosts of funding their books. Credit growth remains modest overall. Housing prices have shown some signsof stabilising recently, after having declined for most of 2011, but generally the housing market remainssubdued. The exchange rate remains high even though the terms of trade have declined somewhat.Since it last changed the cash rate in December, the Board has maintained the view that the setting of policywas appropriate for the time being, but that the inflation outlook would provide scope for easier monetarypolicy, if needed, to support demand. The accretion of evidence over recent months suggests that it is nowappropriate for a further step in that direction.In considering the appropriate size of adjustment to the cash rate at today’s meeting, the Board judged itdesirable that financial conditions now be easier than those which had prevailed in December. A reductionof 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliverthe appropriate level of borrowing rates.