RBA cuts interest rate to 3.25%
BusinessDay reporter Chris Zappone looks at the key factors influencing the Reserve Bank's decision to cut interest rates.PT0M0S 620 349
THE Reserve Bank has cut interest rates to the lowest point since the 2009 financial crisis amid concern the mining investment boom will peak sooner and lower than expected. It is on standby to cut rates again at its board meeting on Melbourne Cup Day.
Iron ore and coal mining companies have told the bank they are putting their investment plans on ice sooner than expected because they can no longer be certain prices will stay high.
They said the rebound in prices over the past month gave them little comfort because they were not confident they would not slide again.
The September commodity price reading released by the RBA yesterday shows the Australian dollar prices of exports had slid 18 per cent over the past 12 months.
The bank has brought forward its estimate of the peak in mining investment from 2013-14 to 2013. It believes the economy will need stimulus as mining investment falls away and says the right time to start providing it is now, given the long lead times involved in boosting activity.
The 0.25 point cut will take the cash rate to 3.25 per cent, the lowest since October 2009. A further cut next month would take it to 3.00 per cent, where it stayed for six months during the financial crisis.
The bank will be guided by investment intentions, global economic developments and the strength of Australian dollar in deciding whether to cut the rate again.
The Australian dollar slid to a low of $US1.0295 on yesterday's move. The sharemarket gained 1 per cent.
If fully passed on, the cut will slice a further $47 off the monthly cost of a $300,000 loan. The four most recent cuts in November, December, May and June have cut a total of $190 from those repayments.
Treasurer Wayne Swan said the cut meant a family with a $300,000 mortgage would pay about $4500 less a year than when the Coalition left office.
"It's a welcome dividend from responsible budget management. It is good news for families and small businesses right across Australia," he said.
Shadow treasurer Joe Hockey said rates were now just one step away from what Mr Swan had previously described as the "emergency levels" needed during the global financial crisis.
"The Reserve Bank is no longer as confident about the outlook for growth," he said
Mr Swan appealed to banks not to "crib" or "crimp" something from the cut. But the Bank of Queensland, the first to respond, passed on only 0.20 points, bringing its mortgage rate to 6.71 per cent. The big four have yet to react.