RBA Cuts Rates to 53 Year Low

The Reserve Bank of Australia (RBA) has cut interest rates to a 53 year low and has avoided reaching one of the longest periods of interest rate inactivity since the GFC by cutting the official cash rate by 25 basis points today.

Loan Market spokesperson Paul Smith said that the decision to drop interest rates today to 2.75 per cent was the most difficult decision of 2013 to predict because of the mix of good and bad economic data.

Mr Smith said that the slowest rate of home loan growth in 26 years, the highest level of unemployment since 2009 and the high Aussie dollar were the biggest factors the RBA considered with this historic drop in interest rates.

Mr Smith said that with the cash rate dropping, all eyes would now be on how lenders responded to the first rate drop in nearly half a year.

“The cost-of-funding issues lenders were experiencing last year while rates were dropping have eased but there’s no certainty that all lenders will move their rates down in step with the RBA,” Mr Smith said.

“With the lowest cash rate in 53 years, home owners are going to be looking for further savings and they can expect lots of competition between the banks. This rate cut will inject some much needed activity into the home finance market,” he said.

Mr Smith said that this rate cut likely meant that fixed rates would continue to fall as well.

“If the rate cuts of the past year are any indication, the RBA will take its time to asses the impact of this rate decision. Knowing that, it’s likely that fixed rates will continue to drop as it’s clear we’re not at the bottom of the interest rate cycle yet.”