THE RESERVE Bank of Australia has provided relief for struggling homeowners by cutting interest rates by 25 basis points. Stay with us for our live coverage. All times in AEDT.
3.39pm Now that the RBA has cut rates, Rate City chief Damian Smith said it's time for consumers to keep a close eye on their banks and make sure they are not paying too much.
“If in January you’re on a variable rate loan and you’re paying more than six and a half per cent, you’re paying too much. If your lender doesn’t do the right thing and you’re stuck with a rate close to seven per cent you should really look at switching.”
3.25pm RBA Governor Glenn Stevens gives an overview for the rate cut decision:
"China's growth has been slowing...trade in Asia is now seeing some effects of a significant slowing in economic activity in Europe...The sovereign credit and banking problems in Europe are likely to weigh on economic activity there over the period ahead...Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates...Overall, the Board concluded, on the basis of all the available information, that the inflation outlook afforded scope for a modest reduction in the cash rate."
Read the full statement here:
3.19pm Market reaction: The stockmarket and the Aussie dollar have fallen after the rates decision. The benchmark S&P/ASX200 index is down 54.5 points, or 1.22 per cent, to 4268.8, while the dollar is at 1.02 US cents.
3.14pm And here’s what you will save per year and per month if your bank plays nicely and passes on the rate cut in full:
Mortgage $100,000 Year $726.03 Month $16.22
Mortgage $150,000 Year $1089.05 Month $24.32
Mortgage $200,000 Year $1452.06 Month $32.43
Mortgage $250,000 Year $1815.08 Month $40.54
Mortgage $300,000 Year $2178.09 Month $48.65
Mortgage $350,000 Year $2541.11 Month $56.75
Mortgage $400,000 Year $2904.13 Month $64.86
Mortgage $450,000 Year $3267.14 Month $72.97
Mortgage $500,000 Year $3630.16 Month $81.08
3.11pm So what was the motivation behind the RBA's rate cut today? We just spoke to HSBC’s chief economist Paul Bloxham, who said today’s move by the RBA shows that they are “quite concerned” about the debt crisis in Europe.
“They acknowledged the domestic economy is actually in pretty good shape, but the doom and gloom of the global economy has had an effect.The key question is what the next move will be, and I think it’s going to be dependent on the global outlook.”
3.03pm Retailers are also cheering today’s rates decision. Australian National Retailers Association chief Margy Osmond said she expects Australians to spend $5.8 billion in the coming week.
“With an additional cash rate cut, Australians may be filled with Christmas gift-giving spirit and give retailers a Christmas to remember – unlike last year which we would like to forget.”
2.59pm Treasurer Wayne Swan said there is no justification for the banks not to pass on rate cut.
“Families and small businesses will be very angry if there is not a full pass through of this rate cut."
Pointing to the fact the RBA said today’s decision was driven in particular by the global outlook, Mr Swan said: “I hope and pray the Europeans get their act together.”
2.52pm While we're waiting for the banks to announce what they'll do, take a step back in time with this nifty chart of interest rate fluctuations since the 1990s.
In December 1990 the official cash rate sat at 12.00! Click here.
2.49pm Regional Bank is the first to play Santa!
Bank of Queensland (BOQ) has become the first bank to cut its interest rates after the central bank cut the cash rate to 4.25 per cent. They said it would reduce the interest rate on its standard variable rate home loans by 25 basis points to 7.36 per cent.
Chief executive Stuart Grimshaw said passing on the full cut was the right thing to do by customers.
2.43pm We just spoke to NAB and they said they haven't decided if they're going to pass it on. After the hammering they got from the press last month, there is a bit of pressure. However they do still have a lower rate than the other three banks so maybe we shouldn't be so hard!
2.38pm It's a waiting game now - will the banks pass on the rate cut? Last time the big four banks did - bar NAB which didn't pass on the full cut.
2.37pm The rate cut will bring some extra income and options to around 2.5 million Australians with variable rate home loans this Christmas period. Damian Smith, RateCity's CEO said:
"The Reserve Bank board has given Australians a good reason to celebrate this month, potentially shaving another $50 off monthly repayments on the average home loan."
2.34pm Will the banks be naughty or nice? All eyes are on the big four to see if they pass on the RBA's rate cut.
Prime Minister Julia Gillard said earlier today that there is "no reason for it not to be passed on in full".
2.30pm RATES HAVE BEEN CUT BY 25 BASIS POINTS
2.23pm It looks like business execs are also hanging their hopes on a rate cut this afternoon. New research from Dun & Bradstreet's has found that a third of all business executives surveyed still say interest rates will be their biggest concern heading into 2012.
2.10pm A fall in interest rates to 4.25 per cent at the 2.30pm (AEDT) meeting will knock about $48 a month from the average $300,000 variable loan if banks pass it on in full.
2.06pm Don’t care what the economists think? Well, the bookies are certainly backing a rate cut…
A surge of money on a rate cut in the past few days caused Centrebet to narrow its odds to $1.55 from $2.10.
Odds on a 50 basis point rate cut also narrowed to $7 from $8.50, while the odds on rates holding steady have blown out to $2.47.
1.54pm But homeowners shouldn’t get too excited should there be a rate cut this afternoon. Banks could have a reason no to pass on any rate cut based on the negative news coming out of Europe.
Roughly one third of the funding for Australian mortgages comes from overseas bond markets. If that funding were to suddenly dry up or become more expensive, banks could have a reason to hold onto any rate cut the RBA offers.
1.48pm While economists are split on today’s decision, 10 of the 14 economists surveyed by AAP are forecasting rate cuts by the middle of 2012.
Citigroup head of economics Paul Brennan is expecting the RBA to cut rates.
“We see this as a policy of least regret given that the outlook for global growth has continued to weaken in the past month to well below trend.''
1.42pm In the past month the RBA, Treasury and the Organisation for Economic Co-operation and Development (OECD) have cut economic growth forecasts for 2012.
1.37pm The case for a rate cut grew this morning after news this morning that the entire Eurozone has been placed on a credit downgrade watch.
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