July 6, 2022 • 2:12 am

Azzam Derbas

RBA cuts rates

Tuesday, 06 December 2011

The RBA has cut the official cash rate for the second consecutive month, dropping the rate by 25 basis points to 4.25 per cent.

Last month the Reserve Bank cut the cash rate from 4.75 per cent to 4.5 per cent.

“Growth in the global economy has moderated this year after a strong performance in 2010,” Glenn Stevens, RBA governor, said today in a statement.

“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe.

“The sovereign credit and banking problems in Europe, to which European governments are still seeking to craft a full response, are likely to weigh on economic activity there over the period ahead.

“This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased. Commodity prices have reflected this, declining further over recent months and taking pressure off CPI inflation rates.

“CPI inflation on a year-ended basis remained above the target at the latest reading, due to the effects of weather events last summer, but is now starting to decline as production of key crops recovers,” he continued.

The Board’s decision to cut rates for the second month in December was to surprise economists, with most forecasting another rate cut.

RP Data’s Cameron Kusher said he was not surprised by the rate cut, particularly given everything that has been happening in the housing market.

“The rate cut should not come as a surprise from a housing market perspective, considering the soft market conditions that first became evident in June of last year have created no inflationary pressures and have persisted,” he said.

“In fact, capital city home values are down four per cent from their December 2010 peak and rental rates have increased by just 4.6 per cent over the 12 months to September.

“The successive improvements to debt servicing positions borne through the two interest rate cuts over the last two months will be a welcome improvement to anyone with a mortgage.

“The primary benefit from the rate cut is likely to be seen in a continued improvement in consumer sentiment which should lead to an uplift in housing transaction volumes which are currently tracking about 10 per cent below the five year average nationally.”

The RBA Board now breaks for a month, with the next Board meeting scheduled for February.

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