RB Australia cuts interest rate to record low 2.25pc

THE Reserve Bank of Australia has cut interest rates for the first time since August 2013.

The cut in the official cash rate could send mortgage rates to their lowest in 50 years.

In one of the most closelywatched policy rulings since the global financial crisis, the RBA board lowered the 2.5 per cent cash rate by 25 basis points to a new record low of 2.25 per cent.

The move was designed to stimulate business activity and household spending in the face of slowing growth, low commodity prices and sluggish investment.

By lowering the rate at which banks can refinance, the RBA hopes to bring down the cost of consumer, housing and business credit.

One expert said the reduction could drive some types of mortgage rates to their lowest level in nearly 50 years.

The RBA said: ‘‘At today’s meeting, taking into account the flow of recent information and updated forecasts, the board judged that, on balance, a further reduction in the cash rate was appropriate.

‘‘This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target.’’

The easing had been widely expected. The Australian dollar immediately lost more than US1c, to a new 51⁄ year low of just below US77¢.

The New Zealand dollar gained about A1c on the news, rising to about A94.2c.

The exchange rate briefly peaked at A96c early last month.

CoreLogic RP Data’s head of research Tim Lawless said the decision could take the typical standard variable mortgage rate down to 5.7 per cent, and the discounted variable rate to 4.85 per cent, the lowest cost of mortgage debt since July 1968.

However, he warned: ‘‘Lower mortgage rates have the potential to add some fuel to what are already strong housing market conditions.’’