RBA cuts official cash rate by 0.25%

As we predicted, Australia’s official cash rate fell this week by 25 basis points to 4.50% which is its lowest since the cash rate system came into use over a decade ago.

A long list of lenders this week moved immediately to decrease rates for new borrowers in direct line with the reduction in official cash rates.

Despite pressure to quickly pass on the reduction, National Australia Bank maintained its usual practice of waiting until today to officially announce its new rates. Interestingly rather than fall into line with other banks it will make new borrowers wait until 15th October when existing borrowers will also receive the rate cut.

Fixed rates continue to fall reflecting that rates are likely to remain low for the short-term with most 3 Year fixed rates falling around 10 to 15 basis points. Rates were mainly between 6.25% to 6.60%, the latter rate belonging to ANZ Bank. Non-bank lender Mortgage House slashed its 3 Year rate by 75 basis points to 6.00%.

Rates for a standard variable home loan have fallen to around 6.30%. This means that for an average home loan of $150,000 monthly repayments will fall to $994.15.

With rates dropping 1.75 percentage points since February this year borrowers are now in a unique position to grab their chance to get ahead on home loan repayments should rates later return to high levels.

InfoChoice recommends borrowers maintain repayments at their current levels to maximise savings of up to $150 per month in interest on a $150,000 loan over 25 years.

The Bank of England also dropped rates overnight by to 2.50%.

Now at 2.50%, US official rates are at their lowest level in 39 years having begun their journey at 6.00% earlier this year. Spending is the key to restoring the economy in the US, with much uncertainty being fuelled by the attacks of September 11.

Federal Reserve Chairman Alan Greenspan is due to deliver a further talk next Thursday. His comments will be keenly sought in light of the release of US Retail sales figures due to be released the following day along with US PPI figures.

Consumers and business’ alike need to feel confident enough about the direction of the economy to begin spending however consumer confidence is at an all time low. The pundits expect to see further tangible evidence of this next week.