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Reserve Bank Drops Interest Rates To Even Lower Historic Low

The RBA has lowered official interest rates to just one percent, the first time the rate has ever reached such a low.

The Reserve Bank made its decision on Tuesday afternoon, dropping rates by another 25 basis points from 1.25 percent. It is the second rate cut in two months, after the RBA had kept the cash rate steady at 1.5 percent for almost three years between August 2016 and June 2019.

"This easing of monetary policy will support employment growth and provide greater confidence that inflation will be consistent with the medium-term target," RBA governor Philip Lowe said in a statement.

He said the national economy had grown "at a below-trend 1.8 percent" during the March quarter, and claimed the cut would support employment growth and provide greater confidence that inflation targets will be met.

"Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices," Lowe said.

"The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside."

The RBA had lowered rates from 1.5 to 1.25 in June. Some banks had resisted passing on the cut to customers when the RBA lowered its official cash rate.

“We do expect the banks to pass on in full to the Australian people the benefits of sustained reductions in their funding costs,” federal treasurer Josh Frydenberg said on Monday.

Repayments on a $500,000 mortgage would drop by $70 a month on average if retail banks fully pass on Tuesday's 25-basis-point cut in the cash rate.

Labor MP and former economist Andrew Leigh said the rate cut was a sign that the Coalition government should reconsider its plan to lock in long-term tax cuts in 2024.

What it could mean for you

Rate cuts mean you will earn less interest on your bank deposits, but also that your mortgage repayments might be on the way down.

If banks pass on the full 25 point cut, as treasurer Frydenberg has urged them to do, here's how it could affect you:

  • Mortgage size: $100,000 - new repayment: $526 - monthly saving: $14
  • $200,000 - new repayment: $1,051- monthly saving: $28
  • $300,000 - new repayment: $1,577 - monthly saving: $42
  • $400,000 - new repayment: $2,103 - monthly saving: $55
  • $500,000 - new repayment: $2,628 - monthly saving: $70
  • $600,000 - new repayment: $3,154 - monthly saving: $83
  • $700,000 - new repayment: $3,679 - monthly saving: $98
  • $800,000 - new repayment: $4,205 - monthly saving: $111
  • $900,000 - new repayment: $4,731 - monthly saving: $125
  • $1,000,000 - new repayment: $5,256 - monthly saving: $139

(Source: ASIC. Figures for 25-year standard variable loan at an average new rate of 3.96 per cent, excluding fees)

With AAP