The Reserve Bank of Australia has cut the cash rate by 0.25 percentage points to 1.5% as low inflation and a slowing housing market paved the way for record low borrowing costs.
RBA governor Glenn Stevens said after Tuesday’s monetary policy meeting in Sydney that very subdued wages growth at home and very low cost pressures globally meant inflation was expected to remain quite low for some time.
In a statement on Tuesday, Stevens said, “The board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting”.
The Australian dollar fell sharply on the announcement to US75.06c, although it had recovered the ground within an hour to poise at US75.36 at 3.30pm.
The local share market also saw some volatility. After rising on the release of the governor’s statement, the ASX/S&P200 benchmark index fell back again to 5,546 points, or a fall of 0.73% on the day.
The RBA’s move followed disappointing data on house building approvals and trade earlier in the day, and the construction industry is likely to welcome the prospect of cheaper loans for prospective homeowners.
But despite the Commonwealth Bank quickly passing on a cut of 0.13 percentage points to home loan borrowers, the RBA made it clear that it did not think the housing market would catch fire because of the historically low rate as had been feared in recent years.