Will the banks pass on the Interest Rate Cut?
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The Reserve Bank of Australia has heard the cries of Australian householders and made the decision to cut the cash rate by 50 basis points. This reduces the cash rate from 4.25% down to 3.75%. The big question now on everyone’s lips is “Will the banks pass on this Interest Rate Cut?”
In coming to its decision the Reserve Bank highlighted that economic conditions have weakened and that inflation has moderated. In particular, the Reserve Bank is concerned about the growth of the world economy slowing, with China’s growth moderating and conditions in Europe remaining difficult.
When it comes to Australia, the Reserve Bank has seen output growth below trend over the last year. This was then coupled with the inflation data, which has declined again.
Whilst the RBA takes a helicopter view of the economy to reach its decisions, the grass roots feeling is that this decision to help reduce the mortgage pressure that homeowners are feeling is very much needed. Recent news reports have seen the property market stagnate with flat and falling home prices. Similarly, the new home building market has been reported to have shrunk again this year. There is also widespread reports of large organisations (such as banks, car companies, airlines, etc) letting staff go in relatively large numbers.
Given this, the decision by the RBA to cut interest rates must surely be good for the overall sentiment of Australians and our economy. The question remains, however, will be banks pass on this interest rate cut?
The big banks did not pass on the previous two interest rate cuts in full. Do you believe that they will pass on the interest rate cuts this time?
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