RBA drop cash rate below 2 per cent

A surprise announcement from the Reserve Bank of Australia saw the official cash rate drop to the lowest it’s ever been - 1.75 per cent.

RBA Governor, Glenn Stevens said the reduction comes following information showing inflationary pressures are lower than expected. The RBA mandate is to keep inflation between 2 and 3 per cent.

“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast,” Mr Stevens said in his May statement.

The RBA took into consideration the housing markets across Australia.It said the indications are that the effects of supervisory measures, such as APRA regulations introduced last year, are strengthening lending standards and that price pressures have tended to abate.

Mr Stevens said: “at present, the potential risks of lower interest rates in this area are less than they were a year ago”.

How did the banks react to the rate cut?

The 0.25 reduction is the first in 12 months, with interest rates remaining stable since May 2015. Following the RBA’s announcement, The Commonwealth Bank, National Australia Bank and Westpac all announced they would pass on the cut in full on standard variable rates.

ANZ announced it wasn’t passing on the rate cut in full, reducing its standard variable home loan rates by 19 basis points, stating the decision was made due to increased wholesale funding costs.

This rate cut marks unchartered territory for Australian interest rates. If you’re wondering if there’s a more competitive home loan out there, your mortgage broker can help you explore your options.