06/08/13: Cash rate cut by 25 basis points

Interest rates fall...

Today Reserve Bank of Australia (RBA) decided to cut interest rates today, by 25 basis points or 0.25%. The cash rate is now at a historic low of 2.5%. This was widely expected as a raft of weak economic data, including yesterday's disappointing retail sales data, was enough pressure to force the RBA to act now. While our economy continues to grow it is grinding slower with some sectors, particularly outside of mining, still struggling, so the hope is that lower rates will give a lift to those sectors to create more 'uniformity'. As we're at the beginning of the Federal Election campaign, the timing of the cut will no doubt be controversial.

As at the time of writing many of the Australian banks have quickly responded, passing on the full rate to borrowers. From an investment perspective, this should take the vast majority of 6-12 month Term Deposit rates well below the 4% mark, forcing an increasing number of cautious investors back into higher yielding risk assets such as shares, bonds and property. Rick Maggi.