Posted in: Insights

01/11/2011

The Reserve Bank of Australia (RBA) has decided to lower the cash rate by 25 basis points, effective tomorrow (November 2).

This marks the first time in exactly a year that the cash rate has moved from 4.75 per cent and RBA governor Glenn Stevens says the move is in line with "a moderation in the pace of global growth".

Stevens asserts that while the Australian economy has indicated an overall pattern of moderate growth, lingering concerns about European and American markets have led to many firms and households adopting a pattern of "precautionary behaviour".

He also points out that competition among lenders is increasing, although overall conditions are "tighter than normal" and borrowing rates are slightly above average.

Cuts to the cash rate were encouraged by the Housing Industry Association last week, with senior economist Andrew Harvey pointing out that the RBA may wish to take revised ABS inflation figures into account when making its next decision regarding monetary policy.

Reducing rates, Harvey explained, would ensure Australia is "well-placed to ride out further global instability".

Senior economists have asserted that it is too soon to tell whether the decision is a one-off move or a sign of further rate cuts to come.

Several of the major banks have already made cuts to their standard variable rate mortgage offerings, which will take effect later this month.

If commercial banks choose to pass on the cash rate reduction in full, a standard 25-year, $300,000 home loan could see monthly repayments slashed by $46 a month, according to the Sydney Morning Herald.

As current and future changes to the cash rate will affect anyone considering their options when it comes to home loans in Australia, it is important to speak to a mortgage adviser about the products that best suit your unique circumstances.