As expected, the Reserve Bank of Australia (RBA) has cut official interest rates by 25 basis points to 3.50 per cent at its board meeting on June 5, 2012. It was the second interest rate cut in a row after a cut of 50 basis points last month.
The RBA cited an uncertain global economy, modest domestic growth and a favorable inflation outlook as the reasoning behind the cuts:
- Growth in the world economy picked up in the early months of 2012, but recent indicators suggest further weakening in Europe and some further moderation in growth in China
- Australia's terms of trade have declined lately after the peak about six months ago, though they remain historically high
- Financial market sentiment has deteriorated over the past month.
- Share markets have declined.
- In Australia modest growth continued in the first part of 2012, with significant variation across sectors.
- Labour market conditions firmed a little, but the rate of unemployment remains low.
- Inflation is expected to be in the 2–3 per cent range over the coming one to two years.
- Interest rates for borrowers have declined to be a little below their medium-term averages.
- Housing market remains subdued.
The Board judged that all these conditions afforded scope for a more accommodative stance of monetary policy.
Most economists predict it will be more interest rates cut this year. Everyone expects 2-3 more cuts by the end of 2012. However it's not clear how much of these cuts banks will pass on mortgage holders. Judging by example of Bank of Queensland which cut their interest rates only by 20 basis points today, all big banks will follow the trend and will not pass the cut entirely.
25 basis point cut will reduce monthly mortgage repayments by $48 on average $300,000 mortgage. To find out how new interest rates will affect your home loan repayments - please use our mortgage repayment calculator.