Businesses urged to hire after rate cut
Australian homeowners and businesses are being urged to go out and spend after the Reserve Bank cut official interest rates to their lowest level since 1959.
In a sign of its increasing concern about the state of the economy, the bank used its first meeting of the year to slice a quarter percentage point from the cash rate to take it to 2.25 per cent.
If passed on in full by the nation's banks, the cut would reduce monthly repayments on a $300,000 mortgage by about $45.
On top of the recent fall in petrol prices - worth about $56 a month to an average household - the interest rate cut should leave people up to $100 a month better off.
Governor Glenn Stevens said the bank, which had held interest rates steady since August 2013, had to act to protect the overall economy.
"The available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak," he said. "As a result, the unemployment rate has gradually moved higher over the past year."
But Mr Stevens conceded the move could lead to either a deterioration in bank lending standards or a spike in house prices.
The rate cut had an immediate impact on the value of the Australian dollar, which fell below US77¢, with Mr Stevens signalling the bank would like the currency to fall further.
The bank has left open the option of a further interest rate cut, with economists tipping May as the most likely month.
When the Reserve last cut rates during the 2013 election campaign, Joe Hockey and Tony Abbott said it was a sign of the troubles facing the economy.
Yesterday, Mr Hockey said the cut was "great news" that would unshackle the economy by easing the financial burden on households and businesses.
"I say to Australian business . . . go out there, have a go, employ more Australians because the costs of doing business are down," the Treasurer said.
But shadow treasurer Chris Bowen said it was the Government that had cut the incomes of ordinary people and hurt the overall economy via the Budget.
Economists, who had largely played down expectations of an interest rate cut, now think the bank could reduce the official rate again soon.
"The RBA could well follow up today's move in March and it therefore does raise the possibility, at least for market expectations, of a cash rate below 2 per cent this year," ANZ chief economist Warren Hogan said.
Real Estate Institute of WA president David Airey said the cut would help the overall economy.
"Consumer sentiment is weak and property sales have been sluggish for the start of the year," he said.
"However, this drop in interest rates, along with falling petrol prices, is a real boost to household finances."
But people reliant on savings will take a hit, with National Seniors warning retirees would be hurt.
"Seniors aged over 65 own 45.3 per cent of bank and financial institution term deposits and most of them are on low, fixed incomes," the organisation's Michael O'Neill said.
"The cut simply means less money in the pockets of many, many retirees around Australia."
Sorrento self-funded retiree Ron de Gruchy, president of WA Self Funded Retirees, said he would not be giving up his regular games of golf any time soon but the cut did have the potential to eat into his and others' savings.
"The sharemarket has jumped, so that's good news . . . but traditionally, there will be people who are disappointed because they will see the value of their investments drop," Mr de Gruchy said.
"In general, a lowering of interest rates is not welcomed by self-funded retirees, but it is welcomed by their children and their grandchildren."
