Yong-Long Lai

Here’s the media release from the Reserve Bank of Australia state the reasons for the 0.75% interest rate drop today. Official interest rates is now 5.25% from an all time high of 7.25% (5th March 2008)! The last time interest rates in Australia was 5.25% was 3rd December 2003 (nearly 5 years ago), be expecting mortgage interest rates to be below 7% for the first time in a very long time!

Looking through the RBA media release, I think the important sentence out of the whole media release is, “…On balance, it appears likely that spending and activity will be weaker than earlier expected….”

End of the day its good news for people with variable mortgages, if you fixed your home loans… hopefully you didn’t fix your interest rates for too long. As with the economy only time will tell how severe its has been effected. Over the next few years I wouldn’t be surprised if unemployment increased as small to medium businesses close their doors or at least cut back their goods and services as demand drops.  

It’s definitely worth learning and understanding about investing particularly over the next few years, such as the stock market or in real estate . Interest rates are now ”low” and there are many buying opportunities if you have the cash or the cashflow to service the debt. Take advantage of this opportunity and start your nest egg or build on it especially in these depressed times.

Statement by Glenn Stevens, Governor Monetary Policy

At its meeting today, the Board decided to reduce the cash rate by 75 basis points to 5.25 per cent, effective 5 November 2008.

World financial markets have remained turbulent over the past month. Global equity prices have been volatile and fell further in net terms, and there have been significant exchange rate movements, including a sharp depreciation of the Australian dollar.  A number of governments have announced measures to strengthen their financial systems, which should help to stabilise conditions over time.

International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well. These conditions have contributed to further falls in world commodity prices.

In Australia, the overall path of economic activity appears until recently to have been close to what the Board had expected, with a needed moderation in demand occurring after a period of earlier strength. Recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected.

Consumer price inflation in Australia remained high in the September quarter. As expected, CPI inflation in year?ended terms picked up to 5 per cent, while underlying measures were just over 4½ per cent.  Nonetheless, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case.

Weighing up these international and domestic developments, the Board judged that a further significant reduction in the cash rate was warranted. The Board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2–3 per cent inflation target over time.

official statement by the RBA