01 May 2012

As Whites IFM has foreshadowed in recent posts, the RBA today took decisive action and cut it’s official cash rate by 0.5% to 3.75%. It remains to be seen how much of this is passed on to consumers by the banks and other financial institutions. Needless to say they will be under considerable political pressure to pass the full 0.5% on to borrowers (but not to depositors!).

The RBA was in a difficult position as it does not like been seen to react to media criticism and their consequent calls for an immediate rate cut. By opting for a 0.5% decrease in the cash rate, the RBA has attempted to “get out in front of the curve” as suggested recently by former RBA Governor, Bernie Fraser. The trade off is that the commentators will view this “double cut” as an admission that the Bank “got it wrong” at their last meeting in April.

The full text of the RBA media release can be found here.