further aggressive Reserve Bank interest rate cuts after the Bank slashed its cash rate by a further 1.00 percentage points to a historic low of 3.25 per cent Tuesday, its lowest level in four decades.
Westpac passed on the cut in full within minutes to its variable mortgage and credit card customers, taking a further $186 off the monthly cost of servicing a $300,000 loan, bringing the total saving since mortgage rates peaked in August bringing the total saving since rates peaked in August to more than $700 per month.
Many mortgage holders will have noticed no change in their repayments due to a practice by banks of not automatically cutting payments as rates fall.
The Reserve Bank board made its decision aware of the details of the government's $42 billion stimulus package which were unveiled as its meeting took place, but said it nevertheless believed that a further "sizable reduction" in the cash rate was needed in order to "cushion" Australia from the worst global outlook in decades...
The ANZ bank followed Westpac in cutting its standard variable mortgage rate to 5.91 per cent, the first time either bank or its predecessor has had a variable mortgage rate below 6 per cent since 1970.
Announcing the first move to Parliament Treasurer called on all the banks to pass on the cut "in a timely way".
Because of the global financial crisis and the global recession that it has caused, we need fiscal policy and monetary policy working strongly together," he said.
The Reserve Bank's statement contained no indication that it would slow the pace of future cuts and had financial markets instantly pricing in a further cut of 0.75 points next month to take the cash rate to an all-time low of 2.50 per cent and then further cuts to take it to 2.00 per cent.
Such cuts would push the standard variable mortgage rate below 5 per cent for the first time since the mid-1950s.
Westpac's Chief economist Bill Evans said the eventual floor to which rates fell would on global conditions, but that he saw "little reason to anticipate any evidence of stability".
"It also seems unlikely that a surprising rebound in domestic data would deter the Bank's intention to cut rates further in the expected environment of a deteriorating world," he added.
Macquarie group interest rate strategist Rory Robertson urged caution, saying he believed it was entirely possible that the Bank would not cut at all at its next meeting in March.
"After having delivered an appropriately aggressive response to the post-Lehmans collapse in global growth prospects, the Reserve Bank now can make a respectable case to wait and watch for a while," he said.
Commonwealth Securities economist Craig James said he believed home buyers had begun to embrace the super-low interest rates in December.
"In fact housing lending may have risen 10 per cent in the month," he said. "While worries about the job market may dull the response, I expect a marked lift in home buying and construction over 2009."