RBA drops rates by 1.00%!
The Reserve Bank has stunned many people including myself by just announcing they'll cut the official interest rate by 1%!! I'd have to check but there wouldn't be many times in history when such a dramatic move occurs. It's unclear how much of this drop will be passed on by lenders of course which is part of the reason for such a large cut.
The RBA said the Australian economy now faced the prospect of slowing growth and lowering inflation. "The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,'' Reserve Bank governor Glenn Stevens said in an accompanying statement.
The problems in the overseas credit markets are having an impact on our banks such that it's more costly to get access to money to lend out and the result is lower profitability.
On the upside we have a strong banking sector in Australia and while no-one likes to see banks making big profits, those profits due ensure that we have a stable banking system in Australia so it's not all bad.
Our share market all ordinaries index jumped about 100 points on the news from around 4500 to 4600.
Yes we are in interesting times and there looks like being some turmoil in the economy for some time, hopefully a relatively short time. If you can take a tip and can afford to do so, then when the lenders drop your variable rate, the best way to get ahead on your mortgage would be to leave the payments as they are. It would also be a good time to look at consolidating any smaller high interest debts if you have the equity in your property to do so. In these uncertain times try to reduce high interest debt like credit cards first. This is a good time to be conservative about taking on any new high interest cards and personal loans, do you really need the extra burden?
Hope this email finds you all well. Remember you can call or email me anytime if you have questions.
Having written the above article on the day that rates were changed by the RBA we've now heard that most of the majors - Westpac, Commonwealth Bank, ANZ, St George, ANZ, Suncorp etc have dropped their variable rate by 0.8%.
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