Tuesday, 7 May 2013

Interest rates hit 53 year low

The Reserve Bank has cut the official cash rate by 25 basis points to 2.75 per cent amid signs of continuing softness in the economy.

The last time interest rates dipped this low was in 1959/1960 and the cut equates to a saving of around $60 a month in interest on the average $300,000 home loan.

The RBA judged a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.
It believes the global economy is likely to record growth below trend this year, before picking up next year. The CPI rose by 2.5 per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving.

Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession and commodity prices have moderated a little in recent months.
The news has been welcome by the Housing Industry Association which reported house price growth in Australia’s capital cities stagnated in the first quarter of 2013.

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