07/05/13: Alert: Cash rate cut by 25 basis points

The comfort and safety of Term Deposits is a double-edged sword...

The Reserve Bank of Australia has just reduced the cash rate by 0.25% to 2.75% effective 8 May 2013. The RBA's Media Release is below. This action is in response to a slowing Australian economy (unemployment is rising, retail and government spending is falling, mining is sluggish, and taxes are set to rise).

Leading brokers are now predicting that our cash rate is headed to 2% and billionaire investor George Soros is betting that the Australian dollar will fall. Against this backdrop, interest rates are likely to continue their drift downwards, which is bad news for term deposit investors, and will probably encourage more Australians back into higher dividend yielding shares, much like the recent American experience (US markets are now trading about 4% above their all-time highs, primarily on the back of very low interest rates).

As the Australian market remains 23% below pre-GFC levels, it is quite conceivable that our markets will get a boost from falling interest rates, provided the global picture doesn't deteriorate. Rick Maggi.  RBA Statement