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 by the most since May 1992. Banks, though, will only pass on part of the 100 basis-point cut to their borrowers, citing their own rising borrowing costs on overseas money markets.
Westpac said it would lower its variable home loan rate by 80 basis points, or 0.8 of a percentage point, from Monday, while Aussie Home Loans said it would pass on as much as 75 basis points of the cuts. The other major banks said they were reviewing their rates.
The Reserve Bank cut its key cash rate from 7% to 6%, compared with the 50 basis-point cut expected by markets. The move follows last month's quarter-percentage point cut by the RBA, which lowered the lending rate from a 12-year high.
"This is perhaps the sharpest about face in Australian monetary policy history," said Matt Robinson, economist at Moody's Economy.com. ''It's such a change from where the central bank was when it raised interest rates in February and March."
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."
Wow was anyone expecting them to cut rates by this much?
Australia's official lending rate was lowered by the most since May 1992. Banks, though, will only pass on part of the 100 basis-point cut to their borrowers, citing their own rising borrowing costs on overseas money markets.
Westpac said it would lower its variable home loan rate by 80 basis points, or 0.8 of a percentage point, from Monday, while Aussie Home Loans said it would pass on as much as 75 basis points of the cuts. The other major banks said they were reviewing their rates.
The Reserve Bank cut its key cash rate from 7% to 6%, compared with the 50 basis-point cut expected by markets. The move follows last month's quarter-percentage point cut by the RBA, which lowered the lending rate from a 12-year high.
"This is perhaps the sharpest about face in Australian monetary policy history," said Matt Robinson, economist at Moody's Economy.com. ''It's such a change from where the central bank was when it raised interest rates in February and March."
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."
Wow was anyone expecting them to cut rates by this much?
