RBA cuts rate as expected

The Reserve Bank earlier this week began to cut official interest rates, by 0.25 percentage points to 7.0 per cent, reversing a slow tightening of monetary policy in response to slower economic growth (and even if inflation remains on the high side).

Futures markets suggest that another three cuts in official rates are likely over the next nine months, with one rate cut in either October or November, another in February 2008 and perhaps one in June 2008. Economic commentators on the whole agree there will be one more cut, but perhaps not three.

Lower money market rates flowed through quickly to home loans and in some cases to deposit rates paid. But rates are yet to fall on many other loans and are rising on some other types of loans such as credit cards. These pricing tactics by banks may mean that further cuts in official rates are likely as soon as next month in order to make sure that all borrowers receive some benefit.

Infochoice.com.au