The quarter of a percent rate cut is clearly welcome news for business and households that have been struggling under the burden of resource development in this country.

The inflationary pressure that billions of dollars of resources projects has placed on wages and resources has been reflected in prices throughout the economy — leading to the so-called "patchwork" economy.

And this was so clearly highlighted in official house prices today: a 2.2 percent average fall for the past year across the country, with flood-recovering Brisbane the toughest market with a 5.2 percent fall.

And while the Reserve Bank is concerned about more global setbacks, its view on Australia is most important for the future of interest rates.

The Reserve Bank, remember, generally does not move interest rates just once (though that said, its rate move last November does appear to be a one-off aberration on the chart).

Hence Westpac chief economist Bill Evans — who called the rate cut first — still has a forecast of a further three rate cuts by the middle of next year.

The Government will be delighted. Treasurer Wayne Swan highlighted the economic conditions he felt justified a rate cut ... but also has exhorted the banks to fully pass on the cut.

He will feel strong — with evidence that since he banned exit penalty fees for home-borrowers that 167,500 Australian households have taken out a home loan completely free of exit fees — that his move to increase regulation on banks to increase competition was entirely justified.

For borrowers, the thing to watch is still the fixed rate mortgages.

These are up to 1 per cent cheaper than the variable rate loans and if the move today prompts further discounting then they attraction to lock a rate away for the next three years will be strong.

So the news is welcome. But don't be too carried away.

The Reserve Bank has shown an ability to within three months completely change its mind on the direction of interest rates.

It can, and will, no doubt do the same thing again if conditions once more change.

User comments

It is good to see that the rate cut has come. Maybe we can all save up and pass the savings onto the immigrants. I don't know why immigrants receive benefits or citizenship. In Dubai you can work here for 30 years and when finished, you go to your home country. There is no welfare system for foreigners so this cuts the burden on the country down massively. Also, Australian carrots and broccoli can be brought here cheaper than in Australia, how does that work?

I agree with the first poster increase the GST.... I work very hard for my money and nothing annoys me more than hearing all the tax cuts that are given to low income workers or families with kids. But because I have choose to have no kids I see no reward for my efforts. There is no incentive to work harder earn more or even run a business. The government just take more and spend it poorly. Raise the GST remove PAYE Tax and Payroll Tax. Then all that lost revenue in PAYE Fraud is saved can't cheat your tax if you pay upfront. No more Individual tax returns. A tax system where the user pays.

The Government wants to control the ecconomy ( through the reserve )the only people they hit is people with home loans , not the ones that own their home or the older children that live at home and earn a wage or the rich . wouldn't it be better if they increase the GST and get every one that spends money not just one small group or is that just pie in the sky ?

I hope Todd in Perth is not typical of Australian opinion (including exaggeration without fact), though sadly general conversation and media tends to support him. He, like many, seems to forget that timely action was required at the time of the GFC so we did not end up like the US or Europe. The only thing he alluded to that was partly correct was the lack of action to create a sovereign fund for future disasters (which seem to happen more regularly now – wonder if that is due to lack of action on climate change and no-one taking a lead?). Costello went part-way there toward the end of the Howard reign, but should have started earlier. This government has also been slow on this front, though the GFC did create a blocker. This is why increased super and a mineral resource rent tax is so important, though the current government has caved in-to big business & interest groups through delays and watered down legislation. It seems that lobby groups now run and constrain Australia...

Very sound advice, but the Gov and business do not want us to be savers, and probably not the majority of the population either. If you cutback on that laptop, meal out etc, then someone has less work. Like earlier posts about super being a ponzi scheme, yup we are 'growing' the economy and taking in migrants just to keep the thing going. Most countries have borrowed too much from their (fewer) children's future. Scarey times, the music has stopped.

Mal from Kenthurst, everyone bashes the Government because they're ruining people. Obviously, you were one of the few who benefited from the BER (Builders Early Retirement) that saw the taxpayers like me paying three and four times the right price for basic structures that will have no impact whatsoever on education standards in this country. Or what about the laptops. All kids got Apple Macs. Crazy. The real world uses Windows more than Apple and these laptops are worth about $2,000 vs budget windows laptops for about $300. Also, no stimulus for Australian economy by buying American owned, Chinese made products. Then, after racking up $50b debt in this year alone, I have to pay a flood levy - a competent government would have had the money there to repair QLD. Now, I get a Carbon Tax WITHOUT compensation as I earn over $70,000. the fact that I have a dependent wife and three children, however, will mean my costs of living go through the roof. The Howard government did none of this.

As I said my super 45 years ago would have bought me four houses but the longer it goes on the fewer it will buy. At the moment it will buy me one average house and I suspect that in another ten years that would be half a house and I salary sacrifice 50% of my wage. I suggest you do some number crunching and see if super is any good!!!!!!!!

Dear Mr Greenwood I have listened to your comments about superannuation and cannot but strongly disagree with you about if it is any good. Super deduction percentage will always increase because it is the ultimate pyrimid scheme and all the money is bet on the stock market. The cry from the super spin doctors will always be the same it isn't any good in the short term but will be very good in the long term Hmmmmm I wish I could get a dollar on with a statement like this. Of course it will never be any good in the short term because all the real money is syphoned off by the companyies and the overpriced stocks will always be on a rollacoaster from now on. I wish I could get a million$ bet on with you that as the percentage of wages needed just to keep up with the nature of superannuation when the amount reaches 50% or when 9% of the population is retired the whole ponzi scheme will collapse. When I started my superannuation 45 years ago my projected super would have bought me four house

i forgot to mention the ones that were looking at their own reflections were female...

well i have seen corruption in the government...i saw two back benchers looking at their own reflections in the camera while someone else.. was making a constructive speech about how we can all get ahead in australia...

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