RBA cuts rates by 25 basis points

Update: Westpac has exceeded the RBA's rate cut, cutting their rate by 28 basis points.

Update: The Commonwealth Bank and ING Direct have joined NAB and BOQ in passing on the rate cut in full.

THE Reserve Bank has cut Australia's cash rate to a 53-year low of 2.5%, putting the economy front and centre on day two of the federal election campaign.

As expected the central bank trimmed the cash rate by 25 basis points, with the Bank of Queensland and NAB wasting no time in passing on the full cut to its home and business loan customers.

Interestingly the RBA governor Glenn Stevens' statement revealed little in terms of the reasons for the cut.

Earlier today Opposition Leader Tony Abbott said a cut to the cash rate was proof the RBA was "concerned" about the economy.

"And why wouldn't they be given that just last Friday the government's economic update revealed that the budget is haemorrhaging to the tune of $3 billion every single week, unemployment is surging towards 800,000 and debt is spiralling to $400 billion.

"If interest rates go down it's because this government is presiding over an economy which is in much more trouble than the government had previously been prepared to admit."

But Mr Abbott said he did not begrudge mortgage holders the added rate relief, saying there was "no doubt that a reduction in interest rates is a good thing".

Labor Leader Kevin Rudd said the decision would be welcomed by families feeling the pressure of a tighter economy.

"So for Mr Abbott and Mr Hockey to come out and say that any such interest rate cut ... is somehow bad just shows you how out of touch they are with the pressure faced y Australian families," Mr Rudd told reporters in Brisbane ahead of the RBA decision.


At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.5 per cent, effective 7 August 2013.

Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined but, overall, remain at high levels by historical standards. Inflation has moderated over recent months in a number of countries.

Globally, financial conditions remain very accommodative, though the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in sovereign bond yields, from exceptionally low levels. Volatility in financial markets has increased and has affected a number of emerging market economies in particular.

In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher. Recent data confirm that inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.

The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.

The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.

The Board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand. At today's meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.

Topics:  cash rate economy federal election 2013 interest rates rba

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