SURPRISE RATE CUT PUTS PRESSURE ON BANKS

Written on the 4 October 2012

SURPRISE RATE CUT PUTS PRESSURE ON BANKS

RETAILERS have called on banks to pass on in full today’s surprise cut to the official cash rate.

In a boost to hopes of a pre-Christmas shopping revival, the Reserve Bank of Australia (RBA) reduced the interest rate by 25 basis points to 3.25 per cent.

The official interest rate, which affects what banks charge mortgage customers, is now at its lowest point in three years.

If passed on in full, the cut represents reduced repayments of around $48 a month on an average $300,000 mortgage over 25 years.

Bank of Queensland this afternoon was the first institution to adjust its rates, cutting its standard variable rate by 20 basis points to 6.71 per cent.

National Australia Bank and Commonwealth Bank followed suit, cutting their mortgage rates by 20 basis points. NAB's rate is 6.58 per cent, while CBA's is 6.6 per cent, effective Monday.

ANZ will anounce its decision on Friday.

Australian Retailers Association executive director Russell Zimmerman says the RBA decision is a boost for the sector, but only if it is passed on in full by the banks.

“One would think, in the current economic conditions, the banks would pass this interest rate cut on to make sure the consumer has some [extra] funding to spend this Christmas,” he says Zimmerman.

Zimmerman says the RBA got the timing right with its decision. Many observers had expected a cut to be delayed until the RBA’s November meeting, on Melbourne Cup Day.

“We have seen retailers struggling over the past 18 months to two years, we are about to see people get their first electricity bills since the carbon tax came into effect and there was a slowdown in spending in July,” Zimmerman told Gold Coast Business News this afternoon.

“Retailers will be pleased to see this reduction and it will give them a little bit of an early Christmas present.

“What you find with retailers is they make about 60 per cent of sales in the last quarter of the year. Retailers need a good Christmas, and let’s be honest, they haven’t had one in the past few years.”

Europe’s contraction, the modest recovery in the United States and China’s slowdown in economic growth led the RBA to make its decision, says governor Glenn Stevens.

“The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside,” he says in a statement this afternoon.

While Australia’s economic growth is running close to trend, it is expected to be weaker than forecast. Stevens says the carbon price will affect consumer spending in the next six months and mining investment will reach a lower-than-expected peak next year.

Despite inflation running at its 2 per cent target, Stevens says it is important to ensure the monetary policy is “accommodative”.

Zimmerman says Australian consumers aren’t immune to international economic pressure.

“The relationship between what is happening overseas and what is happening here is very important,” he says.

“Consumers come to see the danger and they are spooked about what is happening overseas.”


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