Join our investing community

pleasant RBA shock: rates cut by 1%

Discussion in 'The Economy' started by Billv, 7th Oct, 2008.

  1. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    The Reserve Bank has stunned financial markets by announcing a full-percentage point cut - double what analysts had tipped - saying financial markets had taken a "significant turn for the worse.''

    Australia's official lending rate was lowered for a second consecutive month, although it is unclear how much of the 100 basis-point cut will be passed on to mortgage-holders and other borrowers as banks struggle to raise funds in overseas money markets.

    The Reserve Bank cut its key cash rate from 7% to 6%, double the 50 basis-point cut expected by markets. The move follows a 25 basis-point cut by the RBA in September, lowering the lending rate from a 12-year high.

    The RBA said the Australian economy now faced the prospect of slowing growth, while inflation would also subside.

    ''The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,'' Reserve Bank governor Glenn Stevens said in an accompanying statement. ''Should that occur, inflation would most likely fall faster than earlier forecast.''

    "Overall, my guess remains that the RBA's cash rate is on the way from 7% to 6% to 5% and towards 4%," said Rory Robertson, Macquarie interest-rate strategist, before the RBA announcement. "The RBA seems likely to cut its cash rate all the way back to 4.25% within two years.''

    One reason for the steep cuts to come is that clogged credit markets overseas mean that only some of the RBA's rate reductions are likely to be passed on by commercial banks, Mr Robertson said.

    More pain to come

    RBA Governor Stevens said overseas developments had forced the bank's hand, with banks globally hoarding funds out of concern about each others' reliability
    read more here
    RBA stuns markets by cutting its key interest rate by full percentage point
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    That is a bit of a surprise ... will be very interesting to see how much lenders pass on.
     
  3. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Sim,

    I am very pleased actually...:)
    Most families these days have a mortgage so any cut by the banks will be a welcome relief.

    Cheers
     
  4. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    westpac have announced 80pt drop.
     
  5. dmesh87

    dmesh87 Member

    Joined:
    20th Mar, 2007
    Posts:
    23
    Location:
    Vic
    Seems like a self fulfilling proficy. Banks refusing to lend to each either and consumers makes the credit crisis worse and in turn promotes hoarding cash even more.