RBA cuts official interest rate

By Terry Ryder, 1st November 2011

The Reserve Bank board today cut the official interest rate from 4.75% to 4.5%.

There’s clearly something about horse racing that inspires RBA board members because today’s decision comes exactly 12 months after the past change to the cash rate, the rise that was announced on Melbourne Cup last year.

Ironically, the rate cut comes towards the end of a year in which economists have consistently predicted multiple rate rises.

The key factor now is whether lenders pass on the RBA cut in full to mortgage customers. Prime Minister Julia Gillard has urged banks to do so, suggesting that there is no excuse to do otherwise.

If lenders pass on the cut, it means $47 per month less on a $300,000 mortgage and a drop of about $64 a month on a $400,000 loan.

We have seen instances in the past couple of years in which banks has passed only part of an RBA cut – and in November last year when the last rise was announced, many lenders lifted their mortgage rates by more than the RBA increase.

In other words, banks have milked changes to the official interest rate to increase their profits at the expense of their customers.

In the current climate of high consumer dissatisfaction with banks and an increased willingness by consumers to switch banks, lenders would be extremely unwise not to pass on the cut in full. Those that do not deserve to lose customers to their competitors.

ENDS

Related Report

Cheapies with Prospects: National Top 10

It's a common complaint: I want to invest in property but I can't afford city prices. Where can I find an area with prospects for growth and cheap houses? The National Top 10 Cheapies with ...

Read more...