Defying most expectations, the RBA has reduced the cash rate to a record low of 2.25%.
Whilst the general consensus from most industry experts is that there will be a rate cut at some point in the near future, few expected that the rate cut would occur at the very first RBA meeting of 2015.
What is the reason for this rate cut? The RBA Governor Glenn Stevens says the cut is attributed to a “below-trend pace” of domestic growth.
He goes on to say that “the fall in energy prices can be expected to offer significant support to consumer spending, but at the same time the decline in the terms of trade is reducing income growth. Overall, the Bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet.”
Finsure Group Managing Director John Kolenda concurs with the decision by the RBA, however he cautions against any further action by the board:
“If it causes the housing sector to overheat then we could see a hasty correction from the RBA,” he said.
“But in the short-to-medium term we should expect interest rates to stay at low levels.”
Lenders that have so far been quick to act with passing on this rate cut are CBA, Me Bank, ING and Bank of Queensland.