Australia Unexpectedly Cuts Key Rate by Half Point

So finally the grand poo-pah of the Reserve Bank of Australia is realizing his monetary policy is screwing with the Australian economy and has just delivered an unexpected 50 basis point rate cut on interest rates. Well that serves me fine as it will put a little more dollars into my pocket – though this depends on the bank delivering the rate cut as well, largely expected not to pass on the full cut. But we will see, they are under a lot of pressure to do so. But it’s not just Australian economic fundamentals that will see the economy continue to slow as there is economies all around the world slowing or contracting and there appears little, if any at all, light on the horizon for any return to robust economic growth. On the contrary, the world economy continues in demise, and Australia’s dependence on China is like having all our eggs in one basket and when that basket gets a hole in it, it will be panic policies left, right and centre.

Bloomberg

The Reserve Bank of Australia cut its benchmark interest rate by half a percentage point as inflation pressures abate, delivering a bigger-than-forecast reduction that sent the local dollar and bond yields tumbling.

Governor Glenn Stevens and his board slashed the overnight cash rate target to a two-year low of 3.75 percent from 4.25 percent, the deepest reduction in three years, the central bank said in a statement in Sydney today. Two of 29 economists surveyed by Bloomberg News predicted the move, while the other 27 forecast a quarter-point reduction.

The half-point cut was “judged to be necessary in order to deliver the appropriate level of borrowing rates,” Stevens said in the statement. In the next year or two, “inflation will probably be lower than earlier expected” and within the RBA’s target range of 2 percent to 3 percent, he said.

Australia’s economy is struggling to accelerate, with government reports in the past month showing core inflation slowed to a 13-year low, export and house prices slumped, and consumer confidence weakened. With the first rate cut of the year, Stevens is easing monetary policy a week before the government delivers a budget that aims to end four years of deficits by cutting government spending the equivalent of about 2.5 percent of gross domestic product.

I think it is just postponing the inevitable.

Interest rates should go up.

The Housing in Australia is way over priced and it has to crash at some point.

When Keating forced the "Recession we had to have" he was actually right.

By prolonging the whole thing we are only going to make things worse in the long run.

Edit- This is what 'Business Leaders' wanted. They want us all in.

Edit- Dont buy a house any time soon. Unless you plan on keeping it for a long long time.

Edit- 'Business Leaders' are all slapping each other on the back as we speak.

You may want to change your title as there was nothing unexpected about it...
BRW and many other finance publications were tipping this to happen, It was even headline news over the past week and most were tipping 50 basis points...

Back on topic though, the real question remains, Will the big 4 pass it on?????
In my opinion, NO. Reason being that ANZ has already set a precedent by raising rates last time the RBA dropped them... So I think that actual interest rates will not go down.

Waiting now for the Red Head to grow some and stand up for the lil guy..... Still Waiting..... Ahhh, forget it.

Yep it is the first cut of the year. Last one was in December. As for interest rates should go up, well all that does is encourage lazy savers and discourage growth-building and promoting investment. So it's really case of bad or worse, either way is not going to produce an ideal outcome, but sustained higher interest rates is worsening the Australian economy which is not just about housing prices at all, but business, jobs, and so on.

reply to post by surrealist


I know its not just about housing. But in my opinion the whole thing needs to bottom out before things can right themselves. And the ponzi property scheme is indeed key to it all.

And it wont just benifit "lazy savers". It will benifit astute,informed realistic citizens that can see whats going to happen and have minimised risk.