Reserve cuts key interest rate
The Reserve Bank has cut official interest rates for the first time in a Federal election campaign, slicing them by a quarter percentage point.
In a move that will reverberate through the rest of the campaign, the Reserve decided today to take the official cash rate to 2.5 per cent – its lowest level since early 1959.
The cut, if delivered in full by the commercial banks, will save a person with a $300,000 mortgage about $44 a month.
But it will also hit deposit rates, reducing interest for those on fixed incomes.
It is the fourth interest rate cut in the past 12 months and the eighth since the Reserve took rates to 4.75 per cent in late 2010.
Governor Glenn Stevens said while the global economy was growing at a “bit below average” there were some good signs ahead.
He said in Australia the economy was also growing “a bit below trend” with that likely to continue in the near term as the mining boom came off and other sectors improved.
With inflation still under control, and the dollar down by about 15 per cent since early April, there was scope today to take rates even lower.
“The board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand,” he said.
“At today’s meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate.”
CommSec chief equities economist Criag James said the statement suggested the bank believed the Australian dollar could fall even further, which would help many elements of the economy.
The move follows figures from the Australian Bureau of Statistics which showed house prices in Perth lifted by 3.4 per cent in the June quarter.
Prices in the city have now climbed by 11 per cent over the past year, the fastest pace in three years.
Ahead of the Reserve’s decision, Opposition leader Tony Abbott moved away from the coalition’s long term pledge to deliver interest rates lower than those by the ALP.
He instead argued the coalition would deliver stronger economic growth and lower unemployment than the Government.
“There’s no doubt that a reduction in interest rates is a good thing ...but you have to ask yourself, `why are interest rates likely to be cut?’” he said on the NSW Central Coast.
“The Reserve bank is worried about the state of our economy, and why wouldn’t they be, given just last Friday the government’s economic update revealed that the budget is haemorrhaging to the tune of $3 billion every single week, unemployment is surging toward 800,000 and debt is spiralling to $400 billion.”
Prime Minister Kevin Rudd described the coalition’s economic credentials as a “shambles“, suggesting there were differences between Mr Abbott and Mr Hockey over interest rates and the budget bottom line.
“I think that speaks volumes on their fitness for office,” Mr Rudd told reporters in Brisbane.
But he refused say that interest rates would alway be lower under Labor, a line repeatedly used by the Liberals under their former leader John Howard.
“For any politician to stand up, whether it is Mr Howard’s false claim years ago, or any other such claim today about projections about future interest rates is economically irresponsible,” Mr Rudd said.
