The Reserve Bank today cut the official cash rate by 50 basis points to 3.75%, the lowest level since Dec 2009.
Shane Oliver, Chief Economist, AMP Capital Investors was quoted, "I think they have done the right thing. The economy is coming in far weaker and inflation pressures have substantially receded. A 25 point (cut) would be meaningless, whereas a 50 basis point move will lead to decent reduction in borrowing costs."
"The economy is not certainly going to recover just because of the 50 point cut. I think it probably needs a couple more cuts going forward. I don't agree whether it may go in June. We might have to sit back to see the reaction to today's move. But I think it's likely we will see another one or two moves, probably going back with a 25 basis point pattern rather than 50. We will probably see cash rates down to 3.25 by the year end."
A 50 basis point cut would save borrowers $41.66 per month in interest for every $100,000 borrowed. We will have to see whether the Banks pass this on in full or look to hold on to some of this cut to support profit margins in the months to come.
Either way it makes sense to think about how you could use any saving, rather than let it be swallowed up in the general cost of living. For ideas contact us at Medical Financial Planning.
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