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National Australia Bank, Westpac and Commonwealth Bank have cut their variable home loan rates after the Reserve Bank dropped the interest rate to a fresh record low.

The RBA cut the cash rate by 25 basis points to 1.75 per cent at its May board meeting on Tuesday, after more than 12 months on the sidelines.

The unexpected 0.2 per cent drop in March quarter consumer prices, reported last week, led the RBA to revise its inflation forecast which triggered the rate cut.

‘Prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,’ Reserve Bank governor Glenn Stevens said.

National Australia Bank, the sole big four bank to forecast the RBA’s move, passed on the full cut to bring its variable rate to 5.35 per cent within minutes of the announcement.

Westpac then slashed its variable rate to 5.43 per cent before the Commonwealth Bank of Australia (CBA) cut its rate to 5.35 per cent.

ANZ has not announced whether it would follow suit, but Housing Industry Association senior economist Shane Garrett expected the lender to do so.

‘Housing affordability remains very challenging, and homeowners deserve to receive their fair share of today’s rate cut,’ he said.

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