The Australian Reserve Bank has acted just a couple of days ago, to reduce Australian central bank cash rates by 0.25% to 2.5%. Please note this has little direct relationship to current Australian mortgage fixed and variable rates.
Rates fell by 0.25% in May and last December, and are effectively at 30-year lows today.
In explaining the decision the Reserve Bank said: “In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher and recent data confirms that inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.”
These are not the usual kind of historical comments that have accompanied the conclusion that a rate cut is required.
In May this year I wrote that the intentions of the Reserve bank in reducing rates most recently, have been at least partially driven by a desire to affect Australia’s exchange rate.
Reducing the exchange rate improves Australia’s terms of trade with other countries, and despite risks to inflation, the Bank is sending out the message a lower relative Aussie dollar is best for continued economic growth in Australia. This latest rate cut continues the Bank’s quest to subdue Australia’s exchange rate to support exporting industries (expecially miners) at a time when the mining boom’s continued strength is being questioned.
Such a rate cut will reduce monthly mortgage payments by $44 per month on a $300,000 mortgage at the current average mortgage rate of 5.64%. There are much better rates on offer at the banks presently, as they strive to grow mortgage lending business from relatively low recent levels.
Aside from mortgage payments, the recent exchange rate depreciation makes this an opportune time for transferring money left on hold in the UK (or in Euro or USD) waiting for a return to Australia, or for transferring cash that represents a deposit on your Australian property purchase.