 RBA starts 2009 with a large rate cut
Official interest rates have been slashed by 100 basis points. The cash rate is now at 3.25 per cent, the lowest in more than 40 years.
Today's move follows a trail of rate cuts late in 2008, when the RBA cut rates four times, by a total of 300 basis points. The last rate cuts was in December when the RBA also cut a whopping 1% off the cash rate. Slowing economy, low housing sales and rising unemployment has pushed the RBA to consider drastic rate cuts.
ICAP economist Adam Carr says the sharp slump in inflation last quarter meant the RBA had to look at boosting the economy.
"They have come to the view that they need to stimulate the economy as quickly as possible and certainly the concerns they had last year about inflation seem to ... have dissipated completely," he said.
There are some economists that believe the cash rate could go as low as 2 per cent by September 2009.
Consumer advocates and the housing industry called on the banks to pass on the rate cut in full. If the banks pass on the 1% rate cut in full home owners with a $300,000 mortgage will save up to $200 a month in interest repayments.
The RBA decision comes on the same day that the government release details of a second stimulus package, to help kick start the economy. The $42 billion package is aimed at low income workers, families and also promises investment in school infrastructure and regional roads.
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