(14 October 2008 – Australia) Last weeks cut of the official interest rate of 1 percent has been largely met by a 0.8 percent cut by the banks.The RBA, in their official statement, identified two main factors in the rate decisions.
The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, present the risk that demand and output could be significantly weaker than the RBA earlier expected.
Should weaker demand and output occur, inflation would most likely fall faster than earlier forecast. This requires a significantly less restrictive stance of monetary policy, according to the RBA.
The RBA added that the unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers.
In reaction to the RBA rate cut, Westpac was the first bank to move and announced a variable home loan cut by 80 basis point.
The move was followed by each of the Big Four, as well as all the other major banks in Australia, including St George, Bendigo, BankWest, Suncorp and Bank of Queensland.
RAMS, however, bucked the trend with a 90 basis point interest rate reduction.
Also, CBA announced that it would look to cut interest rates by an amount greater than the official rate cut once turbulent market conditions levelled out.
Business loan interest rate reductions were, however, less publicised by the banks. Westpac, however, said that it would reduce interest rates on a range of business loans by 0.80 percent.