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Interest rates cut to record low

The Reserve Bank has cut the cash rate to a record low of 1.75 per cent, just hours before the federal Budget is handed down.

May 03, 2016, updated May 03, 2016

RBA governor Glenn Stevens said the 0.2 per cent drop in March quarter consumer prices from an already low level was a key concern for the central bank.

He said, when combined with subdued growth in labour costs and very low inflation globally, the outlook for domestic inflation was lower than previously forecast.

“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,” Stevens said.

The RBA’s target band for inflation is two to three per cent.

“The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently,” he said in a statement.

“While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.”

Business welcomed the decision.

Ai Group Chief Executive Innes Willox said the interest rate reduction would encourage business and consumer spending and, if supported by tax measure in the Budget, will provide a “shot in the arm” for the economy.

“Many businesses will also be hoping the Aussie dollar also falls in response to assist domestic producers in both the local and export markets,” Willox said.

Interest rate comparison website, RateCity, said that if the banks pass on the cut, the average variable home loan rate would drop to 4.4 per cent. This would mean repayments on the average $300,000, 30-year home loan would cost less than $50 per day.

The NAB said it would pass on the cut in full.

The move, effective from May 16, will trim about $47 from the average monthly repayment on a 30-year $300,000 mortgage.

The big four banks have attracted criticism for not passing on in full previous rate cuts, and there has been uncertainty about whether any cut would flow through this time due to the banks’ need to raise additional capital through product repricing.

NAB said its standard variable rate for owner occupiers will drop from 5.60 per cent to 5.35 per cent, with the rate for investor rates dropping from 5.75 per cent to 5.50 per cent.

“The circumstances of each decision will always vary and we must take into account factors such as competition, regulatory capital requirements and funding costs,” NAB personal banking group executive Gavin Slater said in a statement.

“Today’s decision balances the needs of our homeloan customers with our shareholders.”

NAB will also reduce its rate on standard variable business lending products by 0.25 percentage points.

WHAT YOU’LL SAVE IF BANKS FOLLOW THE RBA:

Repayments on a $300,000 mortgage will drop by $45 a month on average if retail banks fully pass on Tuesday’s 25-basis-point cut in the cash rate by the Reserve Bank.

If your mortgage is (size, new monthly repayments, reduction):

* $100,000 – $608.13 – $14.95

* $150,000 – $912.19 – $22.42

* $200,000 – $1216.26 – $29.90

* $250,000 – $1520.32 – $37.37

* $300,000 – $1824.39 – $44.84

* $350,000 – $2128.45 – $52.32

* $400,000 – $2432.52 – $59.79

* $450,000 – $2736.58 – $67.26

* $500,000 – $3040.65 – $74.74

This assumes 25-year standard variable rate loan at an average new interest rate of 5.4 per cent.

(Source: CommSec)

more to come

– with AAP

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