RBA Rates Decision – December 2012

The Reserve Bank of Australia (RBA) has delivered an early Christmas gift for mortgage Holders with a rate cut of 0.25%. This brings the cash rate to 3.00%, which is at the level seen during the depths of the GFC.  So great news for those who hold debt, but not so pleasing to those who have savings deposits, as this will result in less interest income from these deposits.

Based on recent data, including falling job advertisements, soft private sector credit growth, flat retail spending numbers for October and also flat housing price data released only yesterday, the RBA could justify this move, even though they opted to keep rates on hold in November citing the higher than expected September inflation data, which is interesting given the inflation data is not due out again until after the new year.  So this move by the RBA in retrospect should have come in November as most of us had predicted.

We are only expecting the banks to pass on an average of 20 basis points to market; keeping 5% as a margin grab, given that rates are at historical lows, so their revenue numbers are impacted.  Couple this with poor business lending numbers on their revenue numbers and profits are being squeezed, hence they keep a bit of this rate cut, as the argument for expensive access for money to lend is really not the case currently.  Also as usually expect them to take until at least the middle of the month to actually pass on the cut.

 

(Those people reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)