RBA Takes Out Insurance Policy

The Reserve Bank of Australia (RBA) has taken out an insurance policy against a potential global economic disaster by slashing official interest rates for a second successive month. The RBA lowering its cash rate from 3.75 per cent to 3.50 per cent highlighted its concerns about the worsening European debt crisis.

While the domestic economy has solid foundations, the RBA is clearly concerned by what might happen in Europe and the potential for an economic train wreck. This second consecutive monthly cut is an appropriate move by the RBA, which still has plenty of room to move with interest rates, unlike many other western countries. There remained a lack of consumer confidence inAustraliadespite last month’s 50 basis points cut in the cash rate by the RBA.

That rate cut was not passed on in full to consumers by the majority of lenders and so they have shown some hesitation. The continuing concerns aboutEuropeand even domestic political considerations could be having an impact on consumer confidence overall. But this latest reduction by the RBA will be warmly received by borrowers and the struggling retail sector, and the cash rate is again down to near record lows after being reduced to 3.0 per cent in April, 2009

Consumers will also be encouraged by the fact that interest rates won’t be rising again in the near future.

Those who can should take advantage of the interest rate stability and increase their home loan repayments to reduce their mortgages.

Paul Smith – Loan Market Corporate Spokesperson