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Ben Kingsley Blog post by Ben Kingsley

RBA Rates Decision – October 2012

The RBA has reduced the cash rate at its October Board Meeting by 0.25%.  This brings the cash rate down to 3.25%.

Most market analysts were split 50/50 on this decision to reduce rates, but for an economy that is definitely showing signs of slowing, it comes as welcome news to a mortgage holder.

How welcome that news is will be left in the hands of the lenders and how much of the rate they are prepared to pass on to their borrowers.  The RBA is on record recently outlining that access to funding offshore has improved and margins are not as restrictive as they have been of late, clearing the way for lenders to pass on the full 25 basis point cut.

Although the Euro zone is heating up again re: Spain’s further austerity measures and their potential for a bailout.  This could have a flow impact to cost of funding from offshore and could provide the banks with some argument to not pass on the full rate cut.

A reduction in the cash rate is not only good news for mortgage holders, but traditionally these decisions impact on the value of our dollar.  This move will see the value of the Aussie dollar fall, which is great news for our exporters.  On the flip side our imports become more expensive and this has an inflationary impact, as these higher costs for imported items are passed onto consumers.  This will be eagerly watched by the RBA over the coming months, as inflation is their real concern when it comes to making cash in the economy cheaper.

At this point in time, I still see the need for a further rate cut of 25 basis points within the next 3 – 6 months (it may just be a December Christmas present), but I can’t see a further 50 basis points cut, as some are predicting this far out until at least the second half of 2013 if at all.

Time will tell.

 

(Those people reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decisions 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 financial professionals before taking any action with your financial affairs.)

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