Two things to note about Australia’s benchmark interest rate falling to 1.5 per cent



With the Reserve Bank of Australia (RBA) cutting the official interest rate by 25-basis-point from 1.75 per cent to an all-time low of 1.5 per cent, the Australian share market suffered a slight jolt. The move, which was as expected and is effective August 03, 2016, comes at the back of RBA’s efforts to boost Australian economic growth. Two key things to note entail:


Cash Rate (Source: Reserve Bank of Australia)

RBA’s view on Inflation and Australia’s economic health: RBA governor Glenn Stevens highlighted that Australia’s inflation remains quite low (at a 17-year low level as per recent data). Australia’s terms of trade also remain below the recent years’ trend. The growth is continuing at a moderate pace while the business investment has declined. On the other hand, other areas of domestic demand and exports are witnessing expansion at a better pace. Mixed results have been seen for the labour market with a modest pace of expansion in employment in the near term. As per RBA, low interest rates seem to support the domestic demand and the lower exchange rate is also helping the traded sector. Further, dwelling prices were reported to rise only moderately over the course of the year while there has been sluggishness in growth in lending for housing. Accordingly, RBA stated that the likelihood of lower interest rates exacerbating risks in the housing market has diminished. Overall, the above factors led the RBA decide for easing the monetary policy in order to enable inflation returning to target over time.

Glenn Stevens further stated that the global economy is continuing to grow at a lower than average pace. In addition, China’s growth appears to be moderating while there are some near-term growth prospects, and a number of emerging market economies are facing headwinds.

Rate cut by Banks: On the other hand, there are reports that banks have not been successful in passing the rate cut entirely to home loan customers. The customers might receive only a part of the official rate cut as seen for Commonwealth Bank (CBA) and National Australia Bank (NAB), particularly. CBA is set to cut standard variable interest rates for mortgages by 0.13 percentage points and NAB is cutting the same by 0.10 percentage points. This comes at the back of higher costs coupled with strict regulations being challenges highlighted by the two banks. On the other hand, CBA is set to pass on a rate increase of at least 50 basis points for new one, two and three-year term deposits while NAB is reported to offer 0.85 percentage point increase for new eight-month term deposits.

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.




Leave a Reply