In a surprise move, the RBA lowered the official cash rate by 100 basis points – the largest cut in more than 15 years.
In response the Banks said they would cut their standard variable rate by 0.80% while Aussie Home Loans said it would cut 0.75% of its branded mortgages.
Quoting the corrosion of the global market and wholesale funding conditions, the RBA significantly eased its stance on monetary policy - the 100bps reduction was the first since May 1992.
“The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,” a statement from the bank said.
“Given that background, the Board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy.”
The RBA said it also took account of the funding costs in wholesale markets, and decided that an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers.
It stressed however, that the move should not be seen as establishing a pattern for future decisions.
As of 8 October, the official cash rate will fall to 6% – a level last experienced in August 2006.
Analysts are now predicting further interest rate cuts at next months RBA meeting of 50 basis points with the long term view that the RBA will cut rates to 5%.
This is great news for all those investors out there who are struggling with cash flow. It still leaves getting money out of the banks for new loans or refinancing a HUGE challenge.
