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Reserve Bank of Australia cuts interest rates by 0.25%

Yesterday, the official interest rate in Australia was cut by the Reserve Bank of Australia (RBA) from 4.5% to 4.25%. This was the second 0.25% reduction for interest rates in successive months. While mortgage owners and potential home buyers would be very grateful for the interest rate cut, the RBA did issue a warning with its media release.

The warning is quite simple, there are still major problems in the global economy that are hampering global economic growth and Australia won’t necessarily be shielded. On the same day European countries were put on notice that their credit ratings are on watch and the Australian share market ended down over 1%, despite a positive lead from international markets.

The big four major Australian banks have yet to release details of what they will now do with interest rates and this is disappointing. Obviously, they knew that the RBA may reduce interest rates and you would think that they had been prepared to make an announcement soon after the RBA decision as they normally do.

We suspect that Australian banks have delayed their announcements because of the turmoil in European financial system. The global nature of banking means that problems in Europe will make it difficult to predict the true cost of passing on the rate cut to Australian customers.

While the rate cut should be good news for many, the advice is to be very cautious with any extra cash you may have. If the economy slows this will have a negative effect on jobs here in Australia.

For many, a rate cut means less income to live on. A large number of retirees rely on their bank deposits to pay for living expenses. Our advice is to make sure you keep looking for the best interest rates and of course, if you can make a few savings here and there, that always helps. As we know, a penny saved is the same as a penny earned.

Earlier in the week we did post the article Worried About Your Finances? This was written after successive months of well documented economic concerns mainly emanating out of Europe. It provides some practical advice for saving some money and also better positioning yourself to make money.

Regards

The humble savers team

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