IN a bid to pressure banks to pass on base interest rate cuts to customers, the Reserve Bank of Australia (RBA) has lowered the cash rate by 50 basis points to 3.75 per cent.

If passed on in full by the banks, a 50 basis-point cut will save about $96 a month in repayments on a typical 25-year, $300,000 home loan.

The rate cut had an immediate effect on the Australian dollar. It lost half a US cent to drop to US$1.035 soon after the RBA’s announcement and continued to sink towards the US$1.03 mark in later trading.

Australia and New Zealand Banking Group (ANZ) defends its April decision to lift its variable rate mortgages and small business loan interest rate by 0.06 per cent despite the RBA leaving its cash rate on hold. ANZ reported a $2.92 billion net profit after tax for the six months to March 31, 2012.

“Our recent decisions on interest rates for customers in Australia and on employment within the group reflect the need to reshape our business,” says CEO Mike Smith.

“Clearly though, we need to work harder to find new ways of responding to customer and community concerns about banking and to the changes that have been brought upon the banking sector by this environment.”

The RBA Board reveals inflation moderated but economic conditions are weaker than expected.

“In Australia output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years,” says governor Glenn Stevens in a written statement.

“Output growth was affected in part by temporary factors, but also by the persistently high exchange rate … labour market conditions softened during 2011, though the rate of unemployment has so far remained little changed at a low level.”

The latest Australian Bureau of Statistics consumer price index (CPI) figures for the first quarter of 2012 show underlying inflation declined to slightly above 2 per cent.

“CPI inflation has also declined from about 3.5 per cent to a little over 1.5 per cent at the latest reading, as the weather-driven rises in food prices in the first half of last year have as expected now been fully reversed,” says Stevens.

“Over the coming one to two years, and abstracting from the effects of the carbon price, inflation will probably be lower than earlier expected, but still in the 2–3 per cent range.”

Master Builders Queensland praised the large rate reduction, saying it would significantly boost consumer confidence and recovery in Queensland’s ailing property market.

“By cutting rates this month, the RBA is helping to strengthen consumer confidence, which we hope will in turn stimulate building activity and help to provide stability for our industry,” says executive director Graham Cuthbert.

“The cut is great news for housing affordability, as it should allow more people to consider building a new home. However, for consumers and the industry to benefit from the RBA decision, it is essential that banks pass on the cut.”

The RBA confirms house prices show signs of stabilisation after declining for most of 2011, but still considers the overall property market to be subdued.

Despite this the Real Estate Institute of Queensland describes today’s rate cut as ‘great news’ for the state’s struggling real estate market.

“The interest rate reduction is timely given data released yesterday showed that the number of new detached house sales in Queensland dropped by 15.3 per cent in March – a concerning statistic to come to light on the same day that the $10,000 Queensland Building Boost expired,” says CEO Anton Kardash.

‘‘It is imperative that lenders pass on this rate cut in its entirety to help restore economic activity and confidence levels. Indeed, lenders’ continual excuses about higher funding costs are not only starting to sound very stale but also increasingly self-interested.’’

Aussie executive chairman John Symond suggests more rate cuts may be on the way.

“I expect the rate drop will be followed by further drops in 2012 to help withstand the continuing problems in the global economy,” he says.

“The rate will [also] be welcome particularly in the retail sector, which needs a boost.”

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