The RBA met yesterday and have cut rates by 25 basis points. This takes the official cash rate to a new historical low of 2.25%.
It is a welcome decision for borrowers and a not so welcome decision for a large number of retirees who have portfolio’s weighted towards more secure cash and cash like investments.
The Reserve bank operates independently to the Government and essentially the role of the RBA is to exercise it's powers in the best interest of the country to achieve the following:
(a) Stability of the currency of Australia;
(b) The goal of full employment in Australia; and
(c) The economic prosperity and welfare of the people of Australia.
The Australian economy has been growing below trend, and lowering interest rates is intended to encourage business growth. The RBA sees this as a necessary step to combat current headwinds such as the demand and price of resources declining and rising unemployment.
The interest rate cut along with the decrease in petrol prices should deliver a reasonable amount of stimulus to the economy and it will be interesting to see the effects of this over the next few months.
Of course, investors concerned about falling returns from their cash investments should contact to their FMD adviser or book in for a Free Financial Health Check.
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