RBA cuts interest rate to historic low of 1.25%

RBA cuts interest rate to historic low of 1.25%

The Reserve Bank of Australia (RBA) has cut the cash rate to a record low of 1.25% in an attempt to stimulate the economy.

It is the first time the central bank’s interest rate has been adjusted since August 2016 and follows another month of weak economic data, including the unexpected rise in the unemployment rate to 5.2% in April.

RBA Governor Dr Philip Lowe said the move should help to reduce unemployment.

“Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy,” Dr Lowe said in a statement. “It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target.”

Although there has been little progress on utilising the spare capacity in the labour market unemployment, Dr Lowe said increasing labour force participation, a high vacancy rate, skills shortages and an expected increase in wages were good signs.

“Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment,” he said.

Mortgage interest rates are likely to come down as a result of the RBA rate cut, but how much of the benefit is passed onto customers will depend on the banks.

ANZ reduced its variable mortgage rates in response to Tuesday’s cut, but did not pass on the full amount, with a reduction of 0.18% from 14 June 2019.

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