ELATION and disappointment flowed in equal measure across south-west Victoria yesterday following the official interest rate’s fall to a record low.
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Lending rates have fallen to 1950s levels after the Reserve Bank cut the cash rate to two per cent, crediting ongoing economic weakness for its decision.
The rate cut will pass on a $46 monthly saving to a householder with a $300,000 mortgage and a $77 monthly saving to a property owner with a $500,000 mortgage.
Many self-funded retirees were unsurprised yet disappointed with the Reserve Bank’s decision yesterday.
Australians in Retirement Warrnambool branch spokesman Rod Carter said the cut would squeeze many retirees with their savings parked in bank accounts.
“Most of the analysis in the lead-up to Tuesday had been that there would be a rate cut,” Mr Carter said. “A fair few economists were saying last time around that there’d be a cut and there wasn’t, so it’s unsurprising that this has taken place but it’s still a kick for the poor old retiree.”
Reserve Bank governor Glenn Stevens said the decision came despite some “improved trends in household demand over the past six months and stronger growth in employment”.
“Looking ahead, the key drag on private demand is likely to be weakness in business capital expenditure in both the mining and non-mining sectors over the coming year,” Mr Stevens said.
“Public spending is also scheduled to be subdued. The economy is therefore likely to be operating with a degree of spare capacity for some time yet.”
The Australian dollar dropped yesterday to US77.88 cents but rallied within only a few hours to finish on a high of US79.05 cents.
Mr Carter said the Reserve Bank would be disappointed that the dollar remained strong, as the rate cut was partially designed to soften the national currency against foreign competitors.
“From what I gather, Glenn Stevens is keen to get the dollar down and the Reserve Bank thinks the present exchange rate is too high,” he said. “Obviously, things aren’t that simple. The dollar is pretty volatile these days — it’s unpredictable.”