Reserve Bank surprises market by cutting interest rates
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On Tuesday the 7th of May, 2013. The Reserve Bank of Australia confirmed that interest rates will drop by a further .25% taking the official rate to 2.75%. A surprise to many Australians with only 9 out of 29 senior economists tipping that this will happen. Our latest inflation data showed that inflation was not a threat in the short term, if there wasn’t a rate cut this month it was coming soon. Inflation has been running lower than what we’ve all been expecting with comparison to the exchange rate and that is what would have made them cut rates and act in such as way.
Historically, banks have been reluctant to pass a full rate cut to its customers. As of Tuesday night, both NAB, CBA, Westpac, ING and Bank of Queensland confirmed they will be passing on the full rate cut. What this means from a cash flow perspective and the family budget is a $300,000 loan will save an average $46 per month in mortgage repayment. My budgeting advice is to keep paying the previous minimum amount if you can afford it, this way you save on interest and you repay your loan quicker, by paying the minimum loan amount what you are doing is delaying paying off your home. ANZ is yet to make an announcement.
My opinion is that they will only keep rating interest rates if our economy turns bad such as our mining boom just stops completely because it has slowed down, I must say that this is the lowest cash rate in Australia for 50 years. What it does though in the short term is put more stimulus back into our economy which ultimately gives us more cash flow.
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