RBA cheers borrowers with rate cut

CHRIS ZAPPONE
Last updated 17:47 02/10/2012

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The Reserve Bank of Australia has cut official interest rates in response to a worsening outlook for the economy.

The RBA cut the cash rate by 0.25 percentage points to 3.25 per cent in a move that will be welcomed by borrowers.

A 25 basis point cut, if passed along in full by lenders, would reduce the average monthly repayment on a A$300,000, 25-year mortgage by about A$48.

The Bank of Queensland was the first bank to react, cutting its standard variable rate by 20 basis points immediately after the RBA's announcement.

The Australian dollar fell to the day's low of US$1.0304, from US$1.0368 immediately before the decision.

The decision was considered a line-ball call, with markets tipping a more than 60 per cent chance of a cut, while most economists had predicted the Reserve would stay on hold.

The RBA flagged weaker global growth and a high exchange rate as the reason for cutting rates.

"The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside," governor Glenn Stevens said in his accompanying statement. "Economic activity in Europe is contracting, while growth in the United States remains modest.

"Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago.

"Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks."

Today's move marks the third cut this year and brings the total official reductions to 150 basis points since November, when the RBA first began its current rate cutting cycle.

The central bank was prompted to move after prices for the nation's commodity exports fell in recent months and the outlook for growth in China, crucial for Australia's economy, became less certain.

At the same time, the Aussie dollar has remained above parity with the US dollar, offering little relief to the non-mining parts of the economy, which rely on a weaker currency to stay globally competitive.

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- Sydney Morning Herald

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