THE Reserve Bank has slashed interest rates by the most since the global financial crisis in a bid to reignite growth in the sagging economy. The dollar dived on the decision.
The central bank today cut its official cash rate by 50 basis points — twice the amount expected by economists — to 3.75 per cent.
Today’s surprise reduction, the first by the RBA this year, is the biggest since February 2009 and reflects the bank’s concern that the economy needs an extra shot in the arm.
Attention will now shift to the commercial banks as borrowers — and depositors — wait to see how much the lenders cut interest rates, and how soon.
If passed on in full by the banks, a 50 basis-point cut will save about $96 a month for mortgage holders on a typical 25-year, $300,000 home loan.
But there is no telling if the banks will pass on the saving to its consumers, a real estate peak body representative has said.
Real Estate Institute of Australia, Ballarat chairman John McMahon said current economic conditions all pointed to the Reserve Bank of Australia (RBA) cutting interest rates by at least 25 base points at its board meeting in the afternoon today.
"The most recent Consumer Price Index figures show that the current rate of inflation is the bottom end of the RBA target," Mr McMahon said.
"There seems to be certain element of caution in the market.
"People are cautious about their decision making in relation to taking on new commitments which effects the housing industry — the corner stone of the economy."
He said a reduction now and one or two further cuts would be stimulate the industry.
The cuts, Mr McMahon said, would also have a positive effect on the Ballarat property market.
"If you stimulate the market, in particularly at the lower end, you get a flow on effect through the entire market because people upgrade," he said.
"If there is a cut we can expect to see more movement in the real estate in Ballarat.
"But the most important thing is that any reductions in the official rate is passed on."