The Reserve Bank of Australia (RBA) has lowered the cash rate to 2.25 per cent, effective from today.
Glenn Stevens, RBA Governor: Monetary Policy Decision, said the decision to lower the rate by 25 basis points is “expected to add some further support to demand, so as to foster sustainable growth and inflation.”
“In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year. The fall in energy prices can be expected to offer significant support to consumer spending, but at the same time the decline in the terms of trade is reducing income growth,” Mr Stevens said.
“Overall, the Bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet.”
The Government sees the rate cut as an excellent move for the small business sector, with small businesses expected to have more access to credit thanks to low inflation.
“Small business owners with a $200,000 residentially-secured small business variable loan at a typical rate of 7.10%, for example, would save around $500 a year. Small business owners with a $50,000 small business unsecured overdraft loan at a typical rate of 9.3% would save $125 a year,” Small Business Minister Bruce Billson said in a media release.
Mr Billson also said the cut would put “an extra $750 a year into the pockets of a typical Australian family with a mortgage of $300,000.”
The Australian Chamber of Commerce and Industry (ACCI) also chimed in, calling the cut a “welcome relief” for Australian businesses.
“The Reserve Bank’s decision recognises that many consumers and businesses are doing it tough, with China’s slowdown hurting exports and policy uncertainty at home making planning difficult,” Kate Carnell AO, ACCI CEO, said.
“Interest rates are already at historic lows, and there are dangers of them falling too low if we face another prolonged downturn. No doubt the Reserve Bank will exercise its usual caution in assessing future rate changes.”
