Official Interest Rates Lowered

August 9th, 2013

According to the Treasurer Chris Bowen, "The Reserve Bank was able to make this decision because inflation remains within the target band, because employment and economic growth remain good by international standards but are slowing compared to the projections of a little while ago." However, the opposition did not agree with this rosy assessment, with Coalition spokesman Joe Hockey saying "This interest rate cut is about a struggling economy under Kevin Rudd and is not a great credit to this government at all."

Whether it signifies a struggling economy or not, however, the rate cut will be welcomed by mortgage holders. The cut brings standard variable mortgage rates down to an average of 5.95 percent, a long way from their peak of 7.8 percent in 2011. According to an analysis by the ANZ, variable interest rates are now at their lowest level since the early 1970s and the official cash rate is at its lowest level since the early 1990s when inflation targeting began.

In real money terms, monthly repayments on a $300,000 mortgage have been lowered by $350. An election-mode government were keen to capitalise on these figures, with Mr Bowen saying "This cut means that a family with a standard mortgage of $300,000 will now be paying around $500 less a month and $6,000 less in annual payments than when the Coalition was last in office."

Due to necessity, Mr Abbott seems to have abandoned his stance that interest rates would always be lower under a Coalition government, with the current opposition argument instead stating that continual cuts indicate a fundamental weakness in the economy. The Coalition are not alone in this view either, with former RBA board member and Australian National University economist Warwick McKibbon recently telling ABC's Lateline that "policies that should have been followed haven't been. [The rate cut] was an indication the economy is weak... It's really now down to the Reserve Bank to try and keep things together."