RBA cash rate update May 2016

RBA cash rate update May 2016. The Reserve Bank of Australia cut the cash rate by 0.25% to 1.75% today the 3 May 2016. The cut comes after the cash rate being stable at 2% since May 2015.

In the Statement by the Governor of the Reserve Bank of Australia, Glenn Stevens, on the Interest Rate Decision, he sites low levels of inflation as the the primary reasons for the cash rate cut.

Other reasons that the board had reportedly considered include:

Slower growth in the Chinese economy
Indications are that growth is continuing in 2016, though probably at a more moderate pace.
Labour market indicators have been more mixed of late.
Stabilisation of the housing market
Prudent lending standards.

Though further reasons were considered they appear to be rather benign and appear not to be real drivers of the decision cut rates.

In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago. Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting. Glenn Stevens, Governor of the Reserve Bank of Australia

Which banks have passed on the interest rate cut?

The National Australia Bank, Westpac, Commonwealth Bank and Bank of Queensland have announced that they would pass on the full interest rate cut to their home loan customers. However, ANZ has announced that it would only cut its home loan rate by 0.19%. Other banks and lenders are yet to make any announcement on if they will pass on the cut and by how much.

Commentary

Curious timing for rate cut given that the decision was made on the same day that Federal budget is due to be handed down and just before an election is due to be announced. The Research Bank of Australia board could have taken a wait-and-see approach with inflation and economic factors as they have done for the past year but decided to cut the cash rate anyway. Not that I am opposed to the cut but perhaps it could have been made earlier.

The Australian dollar tumbled by about 1% after the announcement, probably one of the RBA’s intended impacts of the cut.

Mortgage Broker Oak Laurel By Dr Nigel Abery (Ph.D.)