The Reserve Bank has cut the official cash rate to 2.75%, the lowest since records began in 1959, with NAB becoming the first ‘big four’ bank to respond by lowering rates.
The RBA’s 25 basis point reduction is a response to a continued high Australian dollar and the belief that global economic growth will continue “below trend” this year.
However, RBA governor Glenn Stevens stated that a strengthening in consumption and increased investment in dwellings should see sustained growth in the coming year.
“Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013”, Stevens said.
Stevens said that although the rate of unemployment has increased slightly due to slow labour force growth, jobless numbers have remained relatively low.
International markets have reacted swiftly, with the Australian dollar falling 0.81cents from US102.72 cents on Monday to 101.91.
The NAB responded immediately, passing on the full rate cut to customers and reducing their variable home loan rate to 6.13%
Australian Chamber of Commerce and Industry chief executive Peter Anderson said the predicament of small business was too big to ignore and urged the commercial banks to pass on all cuts “without clawback”.
Treasurer Wayne Swan was quick to focus on the positives, saying that because inflation has been contained, the Reserve Bank was able to cut interest rates.
“We have solid growth; we have low unemployment; and we have contained inflation,” he said.
Shadow treasurer Joe Hockey said the Coalition welcomed the news, and was essential in the face of low consumer confidence, and that it would be “a bit rich” not to pass on the cuts in full.
“The Reserve Bank is ready to do the heavy lifting on the economy that the government is unwilling to do,” said Hockey.
Australian Industry Group chief executive Innes Willox said the RBA move was timely and would be welcomed by construction sector, manufacturers and service providers linked to home building.
“Alone, this will not act as a silver bullet to boost demand, but it is a welcome step to stimulate economic activity,” Willox said.