Interest Rate Updates

Reserve Bank of Australia (RBA) raised official interest rates by 25 basis points to 4.00% at it's March 2 meeting.

Today's decision is a further step to make official interest rates closer to average:

"The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average."

The increase today will add about $50 to the monthly repayments of an average mortgage in Australia.

Despite the decision to pause interest rates in February, RBA minutes showed more adjustments in policy was likely and only timing of next interest rate raise is unclear.

Underlying inflation was falling in line with earlier forecasts which were based on the assumption of a gradual rise in the cash rate. However aggressive interest rate hikes in late 2009 gave the RBA flexibility to leave policy settings unchanged "for the time being" in February, allowing to receive some more information on how the economy was responding to the monetary tightening that had already occurred and also consider events in the global economy.

At its meeting on February 2, the Reserve Bank of Australia decided to leave the cash rate unchanged at 3.75 per cent, sending positive shock waves across Australia...

Most economists predicted that official interest rates will be lifted 25 basis points following recent positive news (retail spending is up, unemployment is down, etc.). Some betting agencies even refused to accept bets, because they thought the outcome was too certain. However RBA decided to keep official interest rates unchanged.

The main reason for leaving interest rates on hold was limited information regarding the impact of some lenders raising their rates more than the RBA.

"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point." RBA governor Glenn Stevens said in a statement following the meeting. So "the Board judged it appropriate to hold a steady setting of monetary policy for the time being".

The RBA decision to raise interest rates in December was "finely balanced" and gave central bank more flexibility in the future, RBA Minutes from December 1 meeting reveals.

Main reasons for the decision were:

• Australian economy in 2009 has turned out much stronger than expected. 
• Given the Asian-driven resources boom, the outlook for sustained growth also looks good despite the diminishing effects of fiscal stimulus.
• Inflation will moderate but not fall as far as first thought.
• Housing credit continues to expand while business credit conditions are showing tentative signs of improvement.

The intention of a third successive rate raise is not to slow the economy, but keep it on the track:

"Members agreed that, if developments unfolded as currently expected, monetary policy would need to be adjusted further over time to lessen the degree of stimulus. That adjustment would not be intended to slow demand compared with the current forecast path, but aimed simply at keeping the stance of policy appropriate for improving economic conditions."

Welcome to the "normal" interest rate range!

As for the future interest rate trends - it's a 50-50 chance for February. It seems RBA needs more data on economic activity and inflation in coming months to make a decision on future interest rates.

First time in history Reserve Bank of Australia (RBA) raised official interest rates third time in a row during it's December 2 meeting. However this rise is a small one and the same as the previous ones - 25 basis points.

If banks will pass this rise on the consumers in full (and we are sure they will) it will increase mortgage repayments by $47 per month on a typical mortgage of $300,000.

Someone may call RBA "Christmas Grinch" but don't forget that RBA has no scheduled meeting in January and the next one will be in February only. So as the economy rebounds from a slowdown during the past year, inflation has declined from its peak and is in line with the target, RBA decided "to lessen gradually the degree of monetary stimulus", i.e. to raise interest rates to 3.75% and watch how this increase affects the economy. Until the next meeting...

Interest rates will rise, the only question is the pace or timing of the rises in coming months. This is the main message of RBA Minutes from November 3 meeting.

Conditions in the Australian economy were significantly better than had been expected earlier in the year, underlying and CPI inflation expected to be consistent with the target in 2010, downturn in the labour market had been more moderate than expected - these are all the reasons for gradually to reduce the degree of monetary stimulus.

However, the RBA seem conscious of the risks of raising rates too quickly and the impact that may have on households, especially as fiscal stimulus fades. So we should expect a pause in policy tightening at some point in the near future.

For the second month in a row Reserve Bank of Australia has lifted official interest rates by 25 basis points to 3.50% at its meeting on November 3.

This increase will add about $45 to the average monthly payment for a typical $300,000 home loan. And Australian families will have to cope with that increase as soon as from Monday - all four big banks were quick to announce they'll increase standard variable rates by 25 per cent from Monday.

The following paragraph from RBA press release precisely summarise why interest rates were lifted:

"With the risk of serious economic contraction in Australia now having passed, the Board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."

Minutes of the Reserve Bank's October 6 meeting revealed that official interest rates were lifted by 25 basis points to 3.25% because the risks of not lifting rates starting to outweigh the benefits of leaving the cash rate at the emergency setting of 3%.

The performance of the housing sector and fears about inflation has widely been regarded as a key influence on the rates decision.

The Board noted that many Australian households had taken the opportunity to pay down their mortgages, potentially reducing the impact of rate rises on the economy.

However inflation, the key focus of the RBA in the setting of monetary policy, had not fallen as far as expected, keeping the central bank nervous. As a result, the CPI data due out later this month will provide the best guide to the next move of the Reserve Bank.

The minutes leave the question of future rate rises open ended, hinting however that we should not be surprised to see more. RBA has confirmed they will be cautious in their attempts to return to a cash rate of around 5 or 6 per cent, but any hint of inflationary pressure building in the Consumer Price Index reading later this month could see a more aggressive response from the bank.

After 5 months of no change the RBA decided at its meeting on the 6th of October to raise the official interest rate by 25 basis points to 3.25%.

Australia is the first developed country to start raising its cash rate and is a result of the Australian economy being stronger than expected. "Economic conditions in Australia have been stronger than expected and measures of confidence have recovered" Governor of the RBA, Glenn Stevens said.

With many banks not passing on the previous rate cuts to its customers it will be interesting to see how they handle this announcement. If the banks pass the rate rise on to their home loan customers it could add an extra $50 to monthly repayments for your average $300,000 loan.

Minutes of the Reserve Bank's September 1 meeting revealed that uncertainty about economic outlook abroad and in Australia was the main factor to leave official interest rates at a 49-year low of 3.00 per cent.

"At the previous meeting, members had agreed that if the economy continued to evolve as in the latest forecasts, the Bank would in due course need to adopt a less expansionary policy stance. The information at this meeting suggested that economic conditions were indeed evolving broadly in that way. Nonetheless, some uncertainty remained about the outlook both abroad and at home."

The minutes show RBA still can't decide when a rate rise is due. Helping that was the flow of conflicting figures about the economy, and signs that market forces might be engineering a modest tightening of their own, without any real pressure from the bank. The lack of certainty would have increased a week after the meeting with the release of data showing slowing retail sales and housing finance (but offset by stronger business and consumer confidence).

So we should not see rate rise for a month or two. But RBA will lift the rates. We know that. The timing of the RBA's rate rise however will depend on its assessment of the pressures from business and infrastructure bottlenecks etc. As de facto rate rise for business and some new home borrowers already happened (increased fixed home loans)...

At its meeting on September 1, the Reserve Bank of Australia decided to leave the cash rate unchanged at 3.00 per cent. It's a fifth consecutive month RBA left official interest rates unchanged.

Main points from press release following the decision:

• global economy is resuming growth,
• growth in China has been very strong,
• major economies appear to be approaching a turning point,
• only modest growth is expected in the world economy in 2010,
• forecasts have been revised up recently,
• weakness on the balance sheets of financial institutions remains main risk to the global expansion

Economic conditions in Australia have been stronger than expected:

• consumer spending, exports and business investment have resiled,
• measures of confidence have recovered,
• unemployment has not risen as far as had been expected,
• inflation has been declining due to moderation in labour costs and fall in energy and commodity prices,
• credit growth overall remains quite modest,
• housing credit has been solid,
• dwelling prices have risen over recent months,
• business borrowing has been declining,
• growth is likely to firm going into 2010.

The Board's judgement is that the present accommodative setting of monetary policy remains appropriate for the time being. The Board will continue to adjust monetary policy so as to foster sustainable growth in economic activity and inflation consistent with the target. 

In general, RBA statement was about reaffirming that the next move is up, but not until a durable recovery is seen. However, banks can lift interest rates independently from RBA. Rumour has it that some or all major banks will raise Standard Variable Rates by 0.15% this week...

Minutes of the Reserve Bank's August 4 meeting said that the improvement in the global and domestic economies means further interest rate cuts are unlikely to be necessary.

"In recent months, members had left open the possibility of further reductions in the cash rate should further downside risks to the economy emerge," said RBA minutes, published on Tuesday. "Given the recent improvement in the global and domestic outlooks, it now appeared unlikely that this would be necessary."

However official interest rates should not be lifted for at least 2-3 months as RBA wants to collect more information whether the recent growth in household spending was due mainly to:

• the temporary fiscal measures,
• a more general decline in risk aversion, or
• the more persistent effects of lower interest rates

RBA doesn't want to keep interest rates too low for too long in a recovering economy, "particularly when underlying inflation still needed to decline to reach the target", but on the other hand, tightening monetary policy too early is a risk of "choking off confidence and demand prematurely"...

For the forth time in a row the Reserve Bank of Australia decided to leave the official interest rates unchanged at 3.00 per cent at its meeting today.

Press release writers seems to benefit most from such outcome as today's press release looks identical to previous two. The Board still going to monitor how economic and financial conditions unfold but this time comments on further easing were dropped. Is that means that the interest rate perspective would no longer be biased toward the downside?

Let's wait for the RBA Minutes to be released in 2 weeks time...

Minutes of the Reserve Bank's July 7 meeting said that economic activity in Australia was not as weak as had been expected thus the RBA decided to leave official interest rates on hold at three per cent for the third consecutive month.

The RBA credits a pick-up in China with the turnaround as well as the Government's fiscal stimulus programs and its own sharp cuts in interest rates - which have more than halved variable mortgage payments in less than a year.

Tone of the minutes suggests interest rates will be left on hold for some time but the RBA says there is "a scope for some further easing of monetary policy, if that were to be needed".

RBA doesn't want rate hikes priced in right now, today, because it would undo a lot of the good work of earlier interest rate cuts. The only reason why RBA may cut interest rates one more time by the end of this year is to help the banks cope with their borrowing costs. Nobody wants banks will start raising home loan rates again (like in the case with Commonwealth Bank). At least not yet...

At its meeting today, the Reserve Bank of Australia decided to leave the cash rate unchanged at 3.00 per cent.

Press release following the decission looks identical to June press release:

• global economy is stabilising,
• growth in China has strengthened considerably,
• US economy is approaching a turning point,
• but conditions in Europe are still weakening

In Australia monetary policy has been eased significantly:

• Weaker demand for labour = lower growth in labour costs
• A pick-up in housing credit demand = stronger dwelling activity
• House prices are tending to rise
• Business borrowing has been declining
• Mortgage rates are at very low levels by historical standards
• Business loan rates are below average.

The Board's current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed and thus the Board will continue to monitor economic and financial conditions.

As you know Commonwealth Bank was the first bank among the Big Banks to raise home loan interest rates ahead of RBA decision.

Other big banks followed later on. Here we will provide the summary of home loan interest rates rises by all Big Banks:

As we know Australians are paying $2.7 billion a year too much in home loan repayments by not shopping around and choosing one of the more expensive big four banks instead of the smaller lenders. Don't make the same mistake - compare home loans at Rate Detective and save thousands.

Minutes of the Reserve Bank's June 2 meeting said there was "no pressing case" for an interest rate cut.

The RBA left official interest rate on hold at a 49-year low of three per cent in June, the second straight month with no change in official cash rate. A surprise rise of 0.4 per cent in GDP, had been factored into the RBA's decision, minutes revealed.

The prevailing view among economists is now that the cash rate will most likely not fall any further but instead rise to around four percent by early in the second half of 2010.

However some economists believe that the inflation outlook and raising unemployment will force RBA to cut official interest rates to 2.5% by the end of this year. RBA mentions further rate cut possibilities "if that were to be needed to support demand at a later stage" as well.

And don't forget that RBA was not aware at that moment of the Commonwealth Bank intentions (then followed by Westpac and NAB) to increase standard variable and fixed mortgage rates by 0.10%. Interesting to see how these actions from big banks will affect Board decision during the next RBA meeting.

At its meeting today, Reserve Bank of Australia decided to leave official interest rate unchanged at 3.0 per cent.

Global economy is stabilising and considerable economic policy stimulus in train in most countries is helping to contain the downturn, and should support an eventual recovery. China is an example of the clearest turnaround.

In Australia monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards. Business loan rates are below average. A pick-up in housing credit demand suggests stronger dwelling activity is likely later in the year. Business borrowing, on the other hand, is declining, as companies postpone investment plans.

With demand for labour weakening, growth in labour costs is beginning to fall. These conditions are likely to see inflation continue to abate over the next two years. Which means that scope remains for some further easing of monetary policy by RBA, if needed...

Minutes from the Reserve Bank's May meeting hint that official interest rates may be on hold for some months to come.

Rates stayed on hold at 3 per cent and the minutes released on today show RBA members agreeing that global economic conditions had stabilised. They said renewed growth in China, increased lending between banks and a slowdown in the pace of US and British decline indicates that the worst may have passed.

Board members, however, questioned whether such positive developments in China's growth was due to rising consumer domestic demand or if it was simply the Chinese government stockpiling commodities for future use.

Despite improvements in global economic outlook most economists believe that RBA will lower official cash rate by further 100 basis points by the end of 2009 because of unemployment. As the unemployment rate continues to push higher RBA would probably like to provide a bit of good news to help offset the pain of rising unemployment and its worth noting that in past cycles the RBA has continued easing official cash rate until unemployment has peaked.

The Reserve Bank of Australia (RBA) has left interest rates on hold at 3.00%, as widely expected.

The decision comes despite the fact of falling house prices and rising unemployment. Most likely RBA wants to see the impact of government stimulus, previous rate cuts and any Federal Budget initiatives to be announced on 12 May.

Still despite signs of stabilisation of global economy worsening economic figures in Australia are likely to keep pressure on the bank's board to make further rate cuts in future months.

The minutes of the Reserve Bank of Australia's (RBA) April meeting released on Tuesday had nothing in them to confirm or deny that we could get more rate cuts later in the year.

The market had been divided on whether the RBA would cut by 50 basis points or by zero and minutes show that board was well aware of that. But the argument for the 25 basis point cut wasn't clear.

More forecasts for economic growth in both industrial and emerging economies had been revised lower and RBA board had again lowered their expectations for the Australian economy for 2009. Fear of raising unemployment might be another factor for 25 basis point cut. But whether RBA was aware that the commercial banks were unlikely to pass the cut on - the minutes are discreetly silent...

Reserve Bank of Australia cuts official interest rate by 25 points - NAB passes on zero, others almost nothing (10 basis points). Interest rates on savings accounts are slashed on the other hand.

The purpose of the cut was to inject some extra money into economy by giving some savings to mortgage payers. But instead, those living on interest income have just taken a pay cut, those with borrowings have no benefit.

Businesses are not getting the benefits of these rate cuts because their credit margins and the liquidity cost of term funds is pushing their absolute rate higher not lower.

So, how is the economy benefiting from this cut?

Maybe RBA should have either gone 50 basis points and at least gave the battling mortgage payer and small business a chance of some real relief, or left it at zero so they had some ammunition to give it a nudge one more time if they needed to. If they had left it at zero the banks would hardly have raised mortgage rates to increase margins - this would have been political suicide.

The only winners from such cut are the banks...

The Reserve Bank of Australia (RBA) today cut interest rates by 25 basis points giving homeowners a boost as Australia's jobs outlook continues to look more grim.

Today's 25-basis-point cut, if passed along in full by the banks, will take off t $46 off the monthly repayment on a $350,000 loan over 25 years.

Many economists had predicted no change before this afternoon's announcement. This today is the lowest cash rate since March 1960. The RBA has chopped 425 basis points since September in an effort to keep the economy from slipping into reverse gear.

Commonwealth Bank (CBA) was first to announce that they pass only 0.10% to the borrowers. Expect other banks to follow...

European Central Bank (ECB) cut official interest rate only by 25 basis points to 1.25 per cent.

Most economists predicted that rates will be cut at least 50 basis points and financial markets also had been hoping for the ECB to elaborate on possible plans to increase money supply by extending majorities in its bank refinancing operations or by buying securities.

However ECB president Jean-Claude Trichet said the small rate cut reflected the outlook for diminishing inflation but mentioned that "1.25 per cent is not the floor".

Is that means we can receive similar surprise from RBA on Tuesday?

The minutes of the Reserve Bank of Australia's (RBA) March meeting released today shows that there was a close call for either reducing the cash rate further or pausing for evaluation.

As RBA reduced the rates in each meeting since September thus the board decided "the best course for this meeting was to leave the cash rate unchanged". As "this would leave adequate flexibility for policy at future meetings".

And the rate cuts are most likely at future RBA meetings - Australian economy has a contraction in December quarter and finance ministers from G20 group agreed to cut interest rates further, boost funds to the International Monetary Fund (IMF) and fight protectionism.

Bank of England

At its policy-setting meeting yesterday, the Bank of England cut its key interest rate by 50 basis points to 0.5 per cent. Bank of England also became the first European central bank to implement quantitative easing policy, as it announced it would buy up to £75 billion ($166 billion)mostly in gilts over the next three months.

In a statement accompanying the decision, the Bank of England said that the gloomy outlook for consumer spending and business investment made radical action necessary to prevent inflation dropping sharply below its 2 per cent target medium term.

European Central Bank

ECB, the central bank for the 16-country Eurozone, cut its official interest rate by 50 basis points to 1.5 per cent - the lowest level in its 10-year history. Bank also extended the provision of unlimited liquidity for banks to beyond the end of 2009.

European Central Bank wasn't ruling out a further cut in interest rates, or other ways to increase money supply through unconventional means.

This is the first time the RBA has left official rates steady since August 2008, when rates stood at 7.25 per cent. Still decision leaves official interest rates at the lowest level in 45 years.

However most economists still expect rates to reach 2 per cent or 2.5 per cent this year as the global economic crisis deepens.

The Reserve Bank of Australia is set to cut interest rates to an all-time record low during its monthly board meeting. It's expected that the rate will be cut by 50 basis points to 2.75%. This will mean great savings for homeowners, and if there is a cut, it could be a good time to lock in mortgage rates with a fixed rate loan.

The board will announce its decicion at 2.30 PM tommorow. We'll let you know the details as soon as we hear. 

The minutes of the Reserve Bank of Australia's (RBA) February meeting brought mixed messages as to the future of official interest rates.

In the minutes, the RBA acknowledged that "...market expectations were for an easing in the official cash rate of 100 basis points at this meeting, with the trough in the cash rate now expected to be around 2% later in the year." That indicates more cuts are likely, but the RBA will probably make smaller reductions when it does move.

On the other hand yesterday's RBA minutes suggesting the central bank may hold off a rate cut next month while it waits to see the effect on the economy of extra Government spending ($42 billion package), including the $10.4 billion announced in October. "Members noted that the package of fiscal measures to be announced by the Government later that day would result in a significant boost to demand during 2009."

Monetary policy is a month-to-month decisions. Even though the RBA does always have a broad idea of where it wants to go, every decision, every month, is always made on the day and is subject to 'events'. And though the RBA's 'broad idea' sits somewhere between pausing (no cut) and easing (having a smaller cut) at the next March meeting, 'events' like much sharper than expected fall in Japan's economy or increasingly gloomy comments from the Bank of England may lead to further cuts in official interest rates.

The Bank of England (BoE) cut official interest rates yet again on February 5th, from 1.5% to 1%, a new historic low. The decision to reduce rates for the fifth consecutive month came as little surprise as BoE thinks that the overall effect of rate cuts on the economy is positive, because they benefit firms as well as indebted households.

On the contrary the European Central Bank (ECB) left its key lending rate unchanged at 2%. ECB had made it relatively clear to the markets after the January meeting that the February meeting held little prospect for another rate cut and the next "important meeting" will be in March.

As expected, at its meeting today, the Reserve Bank of Australia (RBA) decided to reduce the cash rate by a further 100 basis points, to 3.25 per cent, effective 4 February 2009.

To find out how much of the rate cut was passed to consumers by banks and lenders, please visit "Home Loans Interest Rates - February 2009" article.  

New Zealand's Reserve Bank has cut the official interest rate by 1.5 percentage points on Thursday.

3.5% is the lowest rate since it was introduced in 1999 and is lower than current interest rate in Australia. That leads to conclusion that Reserve Bank of Australia will reduce official interest rate with no doubt at it's meeting on Feb 3. Most economists predicts a further 1% cut which brings our rate to 3.25%.

Kiwi Bank quickly followed the Reserve Bank's lead and cut its home loan rates. This might be great news as Australian counterparts may act in the same fashion. However it signals worsening times for the economy as a whole and New Zealand's recession is now also predicted to last much longer than first expected.

As expected European Central Bank (ECB) has cut official interest rate by 0.5% to 2.0 per cent on Friday.

ECB hasn't ruled out further monetary easing, but reduction in official rates was unlikely in the very near term. At least until the next ECB "important meeting" which will take place in March.

It seems ECB does not plan to follow other central banks in taking rates to near zero.

As expected, the trend of reducing interest rates continues around the world in 2009.

First is the Bank Of England (BoE) which slashed interest rates by 50 basis points to 1.5 percent. It is the lowest level in the bank's 300 year history. Will we see BoE go to the same level as it's US counterpart?

The European Central Bank (ECB) is expected to cut rates by 50 basis points to 2 per cent this week. A bigger-than-expected rate cut should not be excluded as Eurozone economy is not in the better shape either.

The following table is reflecting the movement of official policy rates in various countries during 2008:

Next scheduled meetings of Central Banks:

• UK - 8 January,
• Europe - 15 January,
• Japan - 20 January,
• Canada - 20 January,
• USA - 28 January,
• New Zealand - 29 January,
• Australia - 3 February

Happy New Year!

US Federal Reserve(FED) cut official interest rate to its lowest level in history this week. And for the first time official interest rates is not a specific target, but range of 0 percent to 0.25 percent.

It is the latest effort by FED to stimulate the US economy, but most economists believe it's a symbolic move and will not have much effect on the US economy. They said availability of credit and weaker economic fundamentals but not the cost of borrowing is the biggest problem for consumers and businesses right now.

The minutes of the Reserve Bank of Australia's (RBA) December meeting said that board members had considered the fact they were not scheduled to meet in January when making the decision to cut the cash rate by 100 basis points to 4.25%. That means that RBA will keep interest rates on hold for at least the next two months, enough time of assessment of local and international events.

Minutes also confirmed that that board members wanted to move from a roughly neutral policy position to one which is clearly expansionary.

"Accordingly, members felt that, on this occasion, a reduction of 100 basis points was appropriate and would contribute to supporting confidence among households and businesses. In particular, a reduction of this size would move monetary policy quickly to an expansionary setting. Given trends in money market yields, the Board expected that most lending rates would fall significantly."

Major European central banks, including the European Central Bank (ECB) and the Bank of England have joined the central banks of Australia and New Zealand in making deep rate cuts.

The ECB delivered the largest rate cut in its near 10-year history, lowering its key rate by 0.75 percentage point to 2.5 per cent. The ECB, which sets interest rates for the 15-nation eurozone, has now lowered its key rate by an unprecedented 1.75 percentage points in two months.

The Bank of England cut its key rate by a full percentage point to 2 per cent, its lowest level since the bank's founding in 1694, as a credit clampdown pushes the UK economy deeper into downturn.

The UK central bank's decision follows a stunning 1.5 percentage point reduction last month. Bank of England policy makers say they haven't ruled out the possibility of taking rates all the way to zero.

New Zealand's Reserve Bank (NZRB) has cut the Official Cash Rate (OCR) by 1.5% today - the biggest single cut in the nation's history. The move, the fourth cut since July, took the official cash rate to 5.0%, the lowest since December 2003.

RBNZ Governor Alan Bollard didn't ruled out further smaller cuts: "Some further, but significantly smaller, reductions in interest rates may be warranted."

Reserve Bank of Australia (RBA) decided to reduce the cash rate by a further 100 basis points, to 4.25 per cent, effective 3 December 2008, at today's meeting.

"Weighing up the international and domestic developments of recent months, the Board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting. As a result of today's decision, the cash rate will be at its previous cyclical low point. Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels."

Here is couple of reasons why we think Reserve Bank of Australia (RBA) will reduce official interest rate for at least 1% during their next meeting on December 2:

• Demand for credit rose just 0.6% in October, according to RBA's report released today. The data takes into account the 125 basis points worth of rate cuts made by the RBA in September and October.
• Retail sales rose just 0.1 per cent in September quarter. Flat sales figures should lead to further interest rate cuts in a bid to boost consumers confidence.
• China cut it's official rates by whopping 1.08% and it might be the new round of global interest rates cuts.
• RBA is not scheduled to meet until February, so they need to make positive impact to the economy for whole 2 months.

Stay tuned.

RBA minutes released yesterday shows that Reserve Bank of Australia was considering between 50 and 75 basis points cut on the official interest rates on Melbourne's Cup day.

"Key factors in members' consideration of the policy decision were the continuing poor conditions in financial markets, the significant deterioration in the outlook for the world economy, with implications for Australia, and the likelihood that inflation in Australia would fall over the year ahead."

The minutes also disclosed that RBA wanted to get rates down to a "neutral" level (neither slowing the economy nor encouraging people to go out and borrow) quickly.

What's next? Taking into consideration that RBA is not scheduled to meet in January, interest rates are tipped to drop by another 75 or 100 basis points after December meeting. Unless RBA decide to hold a January meeting as they did in 1990 during the last recession.

You can bet on footy, you can bet on horses and now you can bet on interest rates!

Centrebet says it is the first bookmaker in Australasia to field bets on the official Reserve Bank of Australia (RBA) announcements on interest rates.

As of today the odds are:

DOWN BY 0.01% - 0.25%              8.00
DOWN BY 0.26% - 0.50%              2.30
DOWN BY 0.51% - 0.75%              2.50
DOWN BY 0.76% - 1.0%                3.50
DOWN BY MORE THAN 1.0%       6.50
STAY THE SAME                             15.00
ANY INCREASE                              101.00

So according to Centrebet 0.50% cut is a slight favourite to 0.75% cut. But 1.00% cut is also possible as odds were down to 3.50 from 7.00 recently. 

As predicted the European Central Bank (ECB), Bank of England, Swiss National Bank and Danish central bank cut interest rates on November 6. Most shocking cut was 1.50% by Bank of England. That is serious allegation that UK heading to a recession.

The following table is reflecting the movement of official policy rates in various countries during 2008:

Next scheduled meetings of Central Banks:

• Japan - 21 November,
• Australia - 2 December,
• New Zealand - 4 December,
• Europe - 5 December,
• UK - 5 December,
• Canada - 10 December,
• USA - 17 December

Compare what home loan interest rates are offered by Australian lenders.

Reserve Bank of Australia (RBA) reduced official interest rate by surprising 0.75%, but Commonwealth Bank's almost instant announcement of 0.58% cut for it's standard variable rate was non the less of surprise.

It seems CBA tried the old "market leader trick" - be the first into the market and set the rate for the rest of the oligopoly to follow. We will see if this trick will work this time.

Update: Other big banks followed the suit and didn't pass full rate cut to it's clients. Check the latest rates updates in our Home loan interest rate cuts - November 2008 article.

A speech delivered yesterday by Mr Ric Battellino (Deputy Governor) to the 7th ITSA Bankruptcy Congress in Sydney contained three key messages:

• Australia's economic outlook is very uncertain;
• inflation is still important and may limit the RBA's ability to cut rates and;
• Australia's house prices are not as dire as in the US

In the conclusion the deputy RBA chief said the Australian economy was likely to grow at a slower pace in the next two years:

"The next couple of years will be noticeably more subdued than the past five. We should not be surprised by this as the income and wealth generated over the past five years were simply extraordinary."

The Federal Reserve slashed interest rates by 0.5 percent to four-year lows today. Official interest rate in the US is 1% now.

China cut its interest rate to 6.66% from 6.93%.

Norway's central bank cut rates by half a percentage point to 4.75%.

Japan may cut rates on Friday and the European Central Bank and Britain are expected to add to the monetary easing next week as authorities remain fearful that the worst financial crisis in 80 years will cause a long global recession.

This let us to expect 0.75% rate cut by RBA on Melbourne Cup day.

Reserve Bank of New Zealand has slashed its Official Cash Rate (OCR) by an unprecedented one percentage point in reaction to global financial turmoil and sluggish growth. Now Official Cash Rate in New Zaland is 6.5 percent.

This cut is the biggest cut since the central bank adopted the official cash rate (OCR) in March 1999, and RBNZ hinted more cuts could follow. The move could help boost New Zealand's slagging economy, which officially slipped into recession this year.

RBA minutes were released yesterday and it seems that increased risks to Australia's economy and signs that inflation will cool gave the central bank a "strong economic case'' for this month's 1 percentage point interest-rate cut, the biggest since a recession in 1992.

Banks' funding costs was another reason for a such big cut. Funding costs had risen by about 20-25 basis points relative to relevant benchmarks and RBA was afraid that any reduction in interest rates that banks announced on loans to customers would most likely be less than the change in the cash rate by a similar margin.

The minutes also showed that concern over fallout from the deepening global credit freeze outweighed the threat that a larger-than-expected rate reduction would erode market confidence. "Members concluded that despite the possibility of a short-term reaction, stronger action would help sentiment over time.''

And though RBA said "Members did not regard this unusually large adjustment as establishing a pattern for future monetary policy decisions" most economists tip that RBA will cut official interest rates on November meeting as well.

Most economists are sure the Reserve Bank of Australia (RBA) will cut interest rates at least by 50 basis points at the next month's meeting. Most likely it will be 75 basis point cut, but RBA may surprise us one more time and cut interest rates by 100 basis points.

Bank funding costs fell this week after the federal government promised to guarantee deposits in Australian-owned banks, building societies and credit unions for the next three years. Existing stability in money markets would make lenders to give home borrowers the full benefits of official interest rate cut this time.

This would lead to a big drop in standard variable home loan rates and big savings for home owners. So don't even think about fixing you mortgage rates yet.

The Reserve Bank of Australia cut interest rates by 100 basis points today. The bigger-than-expected reduction in official rates to 6 per cent was the largest cut in rates by the Reserve Bank since May 1992.

Whilst it is vital to remain strong in the current unprecedented financial environment, the banks really need to show commitment to their clients and pass on the vast majority of the rate cut, if not all of it. Australian families desperately need further rate relief. Any rate cute by the banks that is less than 0.85% will be viewed as unfairly increasing their profit margin at the expense of Australian Families.

Speculations are over. Reserve Bank of Australia cut the official interest rate for the first time in nearly seven years, reducing it by 0.25 of a percentage point, to 7% this afternoon.

Immediately after the RBA announced its decision Australia's big banks and non-bank lenders followed by cutting their variable lending rates. This is also shut up the speculations "which bank is going to be a bastard". All lenders passed at least full 25 basis point to consumers. St George cut its standard variable home loan rate by 30 basis points to 9.37%.

The tone of the RBA statement suggested the central bank was more likely to cut rates again in November, rather than October.

ANZ and NAB has promised to lower home loan rates if the Reserve Bank decides to cut official interest rates at its next board meeting.

And though NAB commitment to reduce rates in full is tied with 25 basis points, ANZ's pledge is not tied to just a 25 basis point reduction, potentially exposing the bank to passing on a higher cut from the central bank.

The other major banks, Westpac and Commonwealth Bank of Australia, have so far refused to guarantee they will pass in full any cut to the official cash rate which is at 12 month high - 7.25 per cent.

It is interesting to observe banks actions in a different scenarios - when official rate is up, banks increase their rates almost immediately and even more than official rise. But when official rate is going down, all banks are reluctant to cut rates suggesting that there are a lot more factors to consider...

The minutes of the Reserve Bank's August board meeting was released yesterday and have all but confirmed market expectations that there will be an interest rate cut next month.

Board members were conscious that financial conditions getting tighter and less restrictive conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase. But RBA's "language" in the minutes is not strong enough to suggest they are heading towards a 50 basis point cut next month. So most likely interest rates will be cut by 25 basis points and couple times in a row.

ANZ has cut its fixed mortgage interest rates by between 11 basis points and 50 basis points to 8.99%. The decision by ANZ to cut its fixed rates - but not its variable rates - comes as financial markets factor in a likely cut in official interest rates next month.

It seems with this move ANZ seeks to show a "good will" for RBA and the public and have excuses not changing or even increasing it's standard variable rate in the future when official rates will be cut by RBA.

Australian Bureau of Statistics (ABS) data last week showed only 11.7 per cent of new mortgages approved in June were at a fixed rate, the lowest market share since October 2005. That was a big fall from March when fixed rate loans commanded 23.9 per cent of all new housing finance commitments. Most economists also agree that official interest rates reached their peak and should go down in the near future. So reducing fixed interested rates is a good move to get "good publicity" without sacrifying any profits.

Taking into consideration the current economic situation in Australia most economists agree that there is no question about whether or not official interest rates will be cut in near future. Merely the question should be: how much will rates be cut by the  RBA - 25 or 50 basis points? The RBA is likely to start with a 0.5 percentage point cut like it did in previous years. Both interest rate cut programs in 2001 and 1996 started with a 0.5 percentage point cut. It would bring the official rate down from its 12-year peak of 7.25 per cent to 6.75 per cent.

Another question however is  - will the private banks follow the RBA and pass on official rate cuts to their customers?

Today as expected the Reserve Bank of Australia has left interest rates unchanged at 7.25 per cent.

The cash rate is at a 12 year high and was certainly expected to stay that way with 19 economists surveyed by AAP expecting the RBA to leave the cash rate steady.

The Reserve Bank has not cut rates since December 2001 and the Banks Governor Stevens indicated in a statement that while the board felt it was appropriate to keep rates steady this month, relief could be in sight.

The RBA raised its cash rate four times between August last year and March to curb price pressures this certainly seems to of worked from the latest retail spending figures which showed the lowest in six years clearly showing that the economy is slowing.

Growth in retail trade fell by a seasonally adjusted 1.0 per cent in June after a surprise 0.7 per cent increase in May, the Australian Bureau of Statistics said. Consumers spent just over $20 billion in June, to post retail's weakest growth in six years.

The RBA's monthly credit report released today also indicates that 12-year high interest rates are curbing demand for credit. Total credit grew just 0.4 per cent in June.

Another two points to mark slowdown in economic growth, backing speculation the Reserve Bank of Australia (RBA) may be in position to cut interest rates early next year or even at the end of this year.

Reserve Bank of New Zealand has cut official interest rates by a quarter of one per cent, to eight per cent - the first drop in five years.

The bank says the cut is justified by a rapidly slowing New Zealand economy, despite strong inflationary pressures which is expected around 5% in the September quarter.

The Reserve Bank governor, Alan Bollard, says further interest rate falls are likely.

Maybe Reserve Bank of Australia will follow it's counterpart's example soon?

Australian Bureau of Statistics reported yesterday that Consumer Price Index (CPI) climbed 4.5% in the year to June. It's the worst inflation numbers since the introduction of the GST. In the three months to June, inflation rose 1.5 % - the highest quarterly rise in 17 years.

The bigger than expected inflation figures indicate that the Reserve Bank of Australia is likely to take its time before giving us any rate cuts. But it is considered there's almost "no chance" of interest rates rising again this year as RBA faces the challenge of managing a steeper economic slowdown than anticipated.

A cut in official interest rates by the end of the year is a real prospect if tomorrow's consumer price index (CPI) data for the June quarter surprise on the low side. 

The producer price index (PPI) at the final stage of production rose only 1 per cent in the June quarter, for an annual rise of 4.7 per cent, the Australian Bureau of Statistics said yesterday.

The result was well below market expectations of a 1.6 per cent rise in the quarter and an annual rate of 5.3 per cent and it seems the June quarter CPI data could also be lower than currently expected.

But if Reserve Bank starts cutting official interest rates within a few months and trading banks don’t cut their rates with the same enthusiasm they have shown for raising them over the past 12 months, what happens then?

Westpac joined the interest rate changes and increased its standard variable rate by 14 basis points to 9.61 per cent this week. Now all major banks in Australia have raised their interest rates despite the fact the RBA left official rates unchanged at 7.25%. Banks are blaming higher costs of funding for these additional raises.

Below you can find a table with the results of the latest increases and how much more it would cost you with an average loan of $300,000 for 30 years under standard variable rate.

 However banks still have various products with better rates and you can compare them here at Rate Detective.

The minutes from the central bank's monetary policy meeting two weeks ago have been released.

"On balance, while members remained concerned about the current rate of inflation and the uncertainties about the outlook, the increasing signs that demand was slowing suggested that the existing policy setting was exerting the appropriate degree of restraint,'' the minutes said.

High petrol prices, significant decline in growth for both household and business credit, interest rates rises by banks independently of RBA - all these factors show that economy is slowing down and taking pressure from RBA to rise official interest rates again. The only concern is inflation as it sits at 4.2% and is well above of RBA's comfort zone (2-3%). But it seems RBA are ready to cope with it for a while so rate rise is unlikely when RBA meets on August.

As expected, remaining banks followed St.George example and increased home loan interest rates by 0.15 - 0.20 per cent.

ANZ announced 15 basis point rate rise late Friday afternoon. ANZ’s new standard variable rate of 9.62 per cent came into effect today.

Today National Australia Bank has become the latest bank to turn the screws on homeowners, hiking its standard variable rate by 15 basis points to 9.61 per cent.

Meanwhile, AMP Bank also said it would increase its standard variable home loan interest rate for existing customers by 0.20 per cent, to 9.67 per cent. The standard variable rate for new customers will increase by 0.11 per cent to 9.67 per cent per annum. The changes take effect this week.

In less than a week after St George lifted its standard variable interest rate by 20 basis points, 2 other major banks, BankWest and The Commonwealth Bank, did exactly the same.

Bankwest has increased its standard variable home loan rate by 0.2 per cent, taking its variable home loan rate to 9.55 per cent.

Commonwealth Bank of Australia has raised its variable home loan interest rates by 14 percentage points, taking its standard variable rate home loan from 9.44 per cent per annum to 9.58 per cent per annum and its basic variable home loan will go from 8.93 per cent to 9.07 per cent.

Raises came despite Reserve Bank of Australia left official interest rates on hold at 7.25%. All banks blame higher cost of funds following the global credit crunch for the increases. If that's the case we should see remaining banks to follow the example and raise their interest rates between 10 and 20 basis points.

It's become more and more crucial to compare home loans first before applying for any home loan.

Borrowers should expect more interest rate rises despite the Reserve Bank of Australia indicating rates are on hold.

Since late last year individual lenders have pushed up their interest rates on top of the "official'' increases by the RBA and it seems lenders are not going to stop doing this.

St George Bank put its mortgage rates up by 0.20% again on Friday and there is likely to be more to come, regardless of the Reserve Bank's decisions.

This is because the finance and banking industry ultimately has the last say on interest rates. Although the Reserve Bank sets an official rate, it is up to each lender to decide what it will charge. And despite the Reserve Bank indicating last week it thinks consumer demand is coming under control, the banks and lenders have other issues to factor in which could still see rates go up again.

The European Central Bank (ECB) raised its main interest rate by a quarter of a point to a seven-year high point of 4.25 percent to choke record inflation as economies slow down.

The following table is reflecting the movement of official policy rates in various countries during 2008:

Next scheduled meetings of Central Banks:

Compare what home loan interest rates are offered by Australian lenders.

The Reserve Bank of Australia has today announced that it will leave the official cash rate on hold at 7.25 per cent. This move was what all major economists were expecting. Economists now say that further signs that the economy is slowing is shown in the unexpected fall in the job market, which has allowed the central bank to sit tight on rates. The RBA raised rates four times between August 2007 and March 2008 as underlying inflation soared to record 16 year high.

After 2 days of deliberation the US Federal Reserve left its interest rate unchanged at 2.00%. It's first break since US Fed began a series of aggressive interest rates cuts last September. Increased expectations to inflation was the main reason for such decision.

Such news is a relief for Reserve Bank of Australia (RBA). If other central banks are getting serious about inflation, that might make it easier for RBA to fight inflation as much of it is coming from overseas. The RBA holds its monthly board meeting on Tuesday and most economists are sure interest rates remain unchanged in Australia as well.

Interest rates are not going down any time soon and it is likely that one further interest rate hike may be necessary towards the end of the year thanks to the iron ore and coking coal price rises. The price hikes highlighted the need for the Reserve Bank of Australia to keep interest rates tight and to continue working to make room in the wider economy for mining-related demand growth. That means slowing other parts of the economy, including retail sales, the housing sector and credit growth with tight monetary policy settings.

The RBA will also battle against the stimulatory effects of $7 billion in income tax cuts, which will be delivered from July 1.

Despite continuing signs of a slowing domestic economy, and the first drop in employment since October 2006, 2 of Australia's big 4 banks still think an August interest rate rise is likely.

ANZ and the Commonwealth Bank are predicting an August rate rise when the consumer price index is released on July 23. Both banks believe that it will show another spike in underlying inflation in the June quarter and RBA will be forced to increase interest rates. 

The National Australia Bank is less convinced that another rate rise is needed and is predicting rate cuts next year as the economy slows further, while Westpac sees rates on hold until 2010.

On the other hand the biennial report of the South Australian Centre for Economic Studies predicts the Reserve Bank will have to lift official rates by 0.25 per cent twice before inflation will be controlled in Australia. Report says employment growth and demand are much stronger than the Reserve Bank had expected and further raising interest rates to counter the effects of the mining boom in Australia.

Everybody is concerned about negative impact raising interest rates have on mortgage, but not everybody sees the other side of the coin. Interest rates on savings accounts have not been this high in Australia in more than 10 years! So there has never been a better time to dive into the "saving mode" and make interest rate rises work for you.

Open a high interest savings account (for example, BankWest TeleNet Saver which has best rates at the moment) and set up an automatic deposit from your main account. Depending on your pay frequency it can be done fortnightly or monthly. Then work a little bit on your monthly budget (cut unnecessary expenses, prioritise, shop around, save on petrol, etc.) and at the end of the day you will notice it's easy to make your money grow.

Official interest rates remain unchanged for couple of months in other countries too. Let's take a look how our rates compare to the rest of the world:

Economy is slowing down and another interest rise is unlikely in coming months. But according to RBA minutes published yesterday there are 2 major factors to pay close attention to – oil prices and wage or price rises.

The RBA highlighted that any outbreak of wage or price rises would spark a review of the bank's current on-hold policy.

The RBA said higher petrol prices could add about quarter of a percentage point to inflation over each of the June and September quarters - potentially pushing the core inflation reading close to 5 per cent. And some economists believe that RBA will raise interest rate to 7.5 per cent on August when RBA gets June quarter CPI (Consumer Price Index) data in late July if that’s the case.

For homeowners, the interest rate cycle could be nearing an end as the RBA emphasised the current interest rate of 7.25% could be cooling the economy by the degree needed to harness inflation.

Fixed interest rates are becoming unpopular, as borrowers believe that the Reserve Bank only has one or two more interest rates rises if any.

Although fixed rate loans are currently offering lower interest rates than variable loans, borrowers are wary of being locked into a relatively high rate if the RBA starts lowering rates in the next year or two. Fixed rate loans made up 17.5 per cent of all home loans taken out in April, down from 23.9 per cent the previous month.

The Reserve Bank of Australia (RBA) is responsible for formulating and implementing monetary policy. The Board usually meets eleven times each year, on the first Tuesday of the month except in January. For each meeting the Bank's staff prepare a detailed account of developments in the Australian and international economies, and in domestic and international financial markets. The Reserve Bank Board's explanations of its monetary policy decisions are announced in a media release, which is distributed through electronic news services and published on the Reserve Bank's website at 2.30 pm on the day of each Board meeting. Any change to the cash rate (interest rate) target will take effect from the following day.

Below you find the chart of recent changes in official interest rates (click on image to enlarge).

The latest jobs data will certainly take some pressure off wage growth, Which the Reserve Bank of Australia has been worried about now for some time Ms Kevans said, adding she expects the RBA to leave rates on hold at 7.25 per cent.

Many Economists believe that the latest impact of job losses on both full and part time workers underscored the pace of the RBA’s orchestrated slowdown.

Prime Minister Kevin Rudd warned of a long fight against inflation as a result the Reserve Bank gave a warning that it will lift interest rates again soon if wages or prices race away.

Still most economists agree that it's unlikely interest rates will be raised on the next RBA meeting. As at 11 June, the SFE 30 Day Interbank Cash Rate Futures July 2008 contract was trading at 92.725, indicative of a 10% expectation that the RBA will change the Target Cash Rate by at least 25 basis points from 7.25% to 7.50% on the 2nd of July 2008 (i.e., compared to a 90% expectation of no rate change).

The RBA today announced that it will keep official rates at 7.25%. Central bank governor Glenn Stevens, in statement accompanying the rate decision, said the board's assessment was that demand growth would moderate this year.

The labour market conditions up until now have remained strong, indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed down dramatically.

The minutes from the Reserve Bank meeting on the 6th of May have been released. It is likely we will see another rise in the interest rate in the coming months. For more detail about the outcome of the meeting see our article RBA Dilemma. 

The latest interest rate rise from the Reserve Bank of Australia saw the cash rate move +0.25 from 7% to 7.25% on the 5th of May. This is the twelfth consecutive rise since 2002 with the last fall being in December, 2001.