The Reserve Bank of Australia has cut official interest rates by one full percentage point.
In a move that has shocked even industry insiders, the official cash rate now sits at 6 per cent.
The RBA met today to discuss interest rates and all eyes were on the central bank to see if they reduced official rates in light of the recent economic meltdown in the US.
Many economists were only predicting a cut of 50 basis points, and now home owners will be looking at the banks to cut home loan interest rates, which sit higher than the official rate. The RBA has said the decision comes after financial markets struggled again in the month of September.
"An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers," RBA governor Glenn Stevens said in a statement.
The last time the central bank cut rates by one percentage point was May 1992. The share market has already responded by gaining more than 1 per cent immediately after the RBA made its announcement.
If the banks do follow and cut their home loan rates, it will bring relief to many home owners, who are still struggling with high interest rates. Prime Minister Kevin Rudd has welcomed the cuts in official rates, and while he has acknowledged that the economic situation is bad at present, he insists that the Australian economy and our banking sectors are stronger than that of the US and is confident of our economic future.
The last time the RBA met to discuss official interest rates was in September, when they cut rates by 0.25 per cent.
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