Cash rate reduced to historical low of 1.5%

Earlier this afternoon the RBA reduced the cash rate to a new all-time historical low of 1.50 per cent.

In RBA Governor Glenn Steven’s statement, the main reason were attributed to low inflation coupled with moderate economic growth globally and locally. Monetary policy easing is expected to assist demand without putting pressure on the national property market.

So, will the banks pass on the interest rate cut in full? CBA will cop a canning in the media as first to announce it will pass on only a 13 basis points reduction, just 7 minutes after the RBA’s announcement. A decision possibly fueled by their self-initiated price war by offering unrealistic and unsustainable interest rate discounting to new business to recapture their diminishing market share.

The banks margins have been cut razor thin in this current climate and I’d expect most banks and lenders will follow in CBA’s footsteps and not pass on the full 25 basis points. 

Linda Hamilton, Lending & Finance Partner, Paris Financial