Reserve Bank slashes official interest rates by 50 basis points!

There was some great news for all home owners and buyers last week when the Reserve Bank  cut official interest rates by 50 basis points to 3.75%.  With most economists’ predicting a cut, the larger than expected move to 3.75% will be a pleasant surprise to all households and businesses.

The move comes after weak economic data, including inflation, housing and manufacturing figures, influenced economists to predict a slash in the official cash rate.

For most mortgage holders and prospective buyers, this is great news! It will potentially cut repayments on a $300,000 mortgage by $125 per month, which will be a big help to all first home buyers and homeowners.

That being said, all of the major banks have once again played their usual game of cat and mouse and in the end failed to pass on the full rate cut. Don’t despair though, as there are some things you can do about it, which I’ll touch on later.

In terms of interest rates, CBA will drop it’s standard variable rate by 40 basis points to 7.01% from Friday, May 11.

The move by the CBA betters the deal offered by NAB, which only passed on 32 basis points from its borrowing rates. What will particularly sting NAB depositors is that they will be hit with the full Reserve Bank cut of 0.50 points, suffering a slide in their earnings from 4.15% to 3.65%.

Westpac has dropped its home loan rate by 37 basis points from 7.46% to 7.09% and at present remains the least competitive of all the major banks.

ANZ, who currently sits at 7.42%, will announce it’s intentions on May 11 in line with it’s new policy on distancing itself from RBA regulation by announcing it’s decision on interest rates on the 2nd Friday of every month.

The Treasurer, Wayne Swan, has labelled the move “an insult to hard-working Australians”.

“Customers with a mortgage or small-business loan will rightly feel short-changed,” he said.

Both the NAB and Westpac have posted bumper first-half profits last week with Westpac’s cash profit coming in at $3.195 billion.  ANZ also lifted its first half profit by 1% to $2.92 billion but said margins in its Australian business are declining.

Mr Swan also had this to say, “NAB and all the major banks are booking huge profits. Customers shouldn’t hesitate to ditch any bank that takes them for a ride with decisions like this.”

What should you do next?

In terms of what you should do right now, there are only 3 options:

  1. Act now: Click here to start a conversation with Salt Finance to assess what options are available to put yourself in a better place.
  2. Assess your position: If you are unsure, click here for a more general overview and get my advice on what your approach should be depending on your specific situation.
  3. Do nothing: If you’re already receiving more than 1% below the major banks standard variable rates and have no impending finance requirements or intentions to fix. Otherwise, click here

For more information these 3 options, please read my following article What should I do about the latest RBA rate drop?

I hope you have found this helpful. Please feel free to leave your comments or questions or alternatively, email me directly at marco@saltfinance.com.au

Marco Cipri