RBA Lowers Rates In Time For Christmas

The Reserve Bank of Australia has announced that its Board has decided to lower interest rates to 3.0% effective from December 5th 2012. Glenn Stevens, Govenor of the RBA issued a statement which gave further insight into the reasoning behind the decision.

Global factors definitely continue to influence Australian monetary policy. Overall global growth was mentioned by the RBA as being expected to be "a little below average for a time".

The main risks to the global outlook are the ongoing problems in Europe. The RBA statement affirmed that although solutions to the European financial woes were progressing, "Europe is likely to remain a source of instability for some time."

The uncertainty around US fiscal policy was also noted of being some concern to global markets.

Throughout the the mining boom Australia has experienced strong growth in the resources sector, which has offset weakness in other sectors. This is mentioned again by the RBA and they also confirm that in their view the peak in resources investment is coming soon.

The key question remains - what areas of the Australian economy will strengthen as resource investment starts to subside? The retail in industry in Australia has been struggling for a number of years and doesn't appear to be driving the type of innovation that customers want to see and that will drive an increase in retail spending.

Residential property is sputtering along with some slight upward growth in most areas of Australia. The RBA noted that dwelling prices are "moving a little higher" and that rental property yields are heading upwards.

Inflation is generally under control and within an acceptable band for the RBA. It was noted that the introduction of the carbon price affected consumer prices in the most recent quarter and is expected to have an ongoing effect into the middle of 2013.

Considering inflation is at an acceptable level, unemployment increasing slightly and Australia has a slowing resources sector - as well as turbulent conditions in Europe - the RBA made the widely expected decision to help "foster sustainable growth" by lowering the cash rate by 0.25%.

The wait now turns to the Big 4 banks to see how much of the cut will be passed on to consumers to reduce repayments on home loans.

Whilst an interest cut is good news for home owners, the news doesn't help many Australians who don't have a mortgage and will now have their high interest savings account interest rates reduced. Locking in for a term deposit over a number of years negates the ongoing changes in interest rates - but high interest savings accounts have increased in popularity with their no commitment and no lock-in approach to growing savings as fast as possible.

This is of course the tight rope that the RBA is continually forced to walk. Any decision to lower or increase interest rates is bound to negatively affect one sector or group and positively impact another. For a number of years the resources boom in WA and QLD were forcing the RBA decisions to slow inflation, whilst NSW was seemingly in recession and in need of economic incentive and stimulus.

To all those who benefit from today's announcement, congratulations and make the most of the few extra dollars you'll have in your pocket. Of course one of the best ways to pay your loan off early is to make extra or higher repayments. So considering keeping your repayments the same despite the interest rate drop and it will help you pay your debts sooner!

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