China Syndrome Prompts RBA to Act

A range of economic indicators led by a slowdown in China has persuaded the Reserve Bank of Australia (RBA) to lower official interest rates for the third time this year, according to leading mortgage broker Loan Market.

The RBA today reduced its cash rate 25 basis points to 3.25 per cent – almost back to the near record lows of 3.0 per cent in April, 2009, at the height of the global financial crisis.

Loan Market Corporate Spokesman Paul Smith said the RBA stayed on the sidelines for the past four months but has now reacted to factors such as sharp falls in commodity prices and concerns about China’s economy.

“The falls in iron ore and coal prices plus the end to China’s boom along with sluggish domestic jobs growth has prompted the RBA to take action,” he said.

Mr Smith said the RBA has more room to move than most of its central bank counterparts with Australia’s cash rate still higher than more than 30 other countries.

“The RBA at least has plenty of ammunition to respond to any further deterioration of the economy,” he said.

“We may see rates come down again before the end of the year with some commentators predicting they could drop below 3.0 per cent.”

Mr Smith said consumers would be disappointed if lenders did not pass on the full 25 basis points reduction.