RBA Meeting October 2012: Rates Reduced to 3.25%

The Reserve Bank of Australia (RBA) has cut official interest rates by 25 basis points to 3.25 per cent at its board meeting on October 2, 2012. This surprise decision comes after Reserve Bank was worried that the outlook for world economic growth had weakened in the past month and decided to revive the demand outside of a resource boom.

  • The outlook for growth in the world economy has softened over recent months.
  • Australia's terms of trade have declined by over 10 per cent since the peak last year and will probably decline further.
  • Financial markets have responded positively in addressing Europe's financial problems.
  • Share markets have generally risen over recent months.
  • In Australia, most indicators suggest economy growth has been running close to trend, led by very large increases in capital spending in the resources sector.
  • Labour market data show moderate employment growth and the rate of unemployment has thus far remained low.
  • Inflation has been low, with underlying measures near 2 per cent over the year to June, and headline CPI inflation lower than that.
  • Interest rates for borrowers have for some months been a little below their medium-term averages.

The Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker, while inflation was expected to be consistent with the target. The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative.

As it was a surprise decision by many most likely banks will not pass on full interest rates cut to borrowers. However at least one more cut is expected this year (most likely on Melbourne's Cup Day) and banks will need to pass in full on that one.

UPDATE: As expected the Big Four banks didn't pass the full interest rate cut to the customers:

  • NAB - standard variable mortgage rate is 6.58 per cent (↓0.20%), effective October 8.
  • Commonwealth Bank - standard variable rate is 6.60% (↓0.20%), effective October 12.
  • ANZ - Standard Variable Rate is 6.60 per cent (↓0.20%), effective October 19.
  • Westpac Bank - standard variable rate is 6.71 per cent (↓0.18%), effective October 15.

To figure out your home loan repayments for the current rates - please use our mortgage repayment calculator.