RBA maintains cutting course

by Adam Smith05 Jun 2012

The Reserve Bank met expectations today by dealing a 25bp cut to the official cash rate.

The RBA was widely expected to cut the cash rate by 25bps following weak retail data and low inflation figures. A Bloomberg survey found more than half of economists polled foresaw a 25bp cut.

ABS figures showed a surprise drop in retail sales, and the TD Securities - Melbourne Institute Monthly Inflation Gauge was flat for the month, tracking at only 1.8% for the 12 months to May.

An industry figure said the RBA can stop playing "catch-up" following its 25bp rate cut to 3.5%.

"It is a relief to see that the RBA finally seems to have grasped the severity of the situation facing our main employment industries like construction and retail," 1300 Home Loans' John Kolenda said.

While Kolenda conceded that the rate cut would not be a panacaea for consumer sentiment, he said it would provide a much-needed boost.

"This rate cut is not the end of the road by any means but it does mean that homebuyers and consumers will be a little less cash-strapped and might step back a bit from their siege mentality," he said.

The MFAA praised the move as well, but CEO Phil Naylor warned banks may not follow the 25bp cut.

"Many lenders are not moving in lock step with the Reserve Bank and borrowers should not expect the whole 0.25% rate drop will be passed on to them," he said.

Naylor said brokers could find an opportunity to help consumers confused by out-of-cycle rate movements.

"The decision by lenders to run their own rate change agendas has resulted in a very complicated situation for borrowers to negotiate. Mortgage brokers currently have a market share of 42% of the mortgage market and represent the best chance for borrowers to capitalise on the change in cycle and negotiate a better deal with their own lender or move to another," he said.

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