THE Reserve Bank has announced a second consecutive monthly cut to the benchmark interest rate, with Bank of Queensland (BOQ) being the first to announce a partial on-pass of the 25 basis-point reduction.
BOQ says it will provide a 20 basis-point cut to its borrowing customers.
The RBA’s 25 basis-point cut reduces the official cash rate to 3.5 per cent.
The decision comes after the RBA announced a 50-point cut last month. Most banks passed on 25 to 30 points of savings to borrowers.
The RBA’s decision came after a volatile five weeks in which more than $125 billion was wiped off Australian equities following ongoing uncertainty in Europe, weak economic data from the United States and a cooling Chinese economy.
In a statement accompanying the rate reduction announcement, the RBA describes the decision as an “accommodative stance” on monetary policy.
"In Australia, available indicators suggest modest growth continued in the first part of 2012, with significant variation across sectors," says the bank.
"Overall labour market conditions firmed a little, notwithstanding job shedding in some industries, and the rate of unemployment remains low.
"Nonetheless, both households and businesses continue to exhibit a degree of precautionary behaviour, which may continue in the near term."
The market reacted cautiously to the decision with the S&P/ASX 200 index showing slight gains in trading after the announcement. The ASX traded higher for the day, closing at the 4045 mark.
Some economists had predicted the RBA might hold back on any action on interest rates until after new elections in Greece are held a fortnight later. The outcome of that poll could decide whether Greece stays in the Eurozone, a decision that is expected to have significant impact on the financial stability of the region.
BOQ chief executive officer and managing director Stuart Grimshaw says global economic uncertainty influenced the bank’s decision to pass on a 20-point cut, effective from June 16.
BOQ’s new variable home loan rate will be 6.91 per cent.
“Volatility in overseas markets continues to push up the cost of funds and demand for deposits in Australia,” says Grimshaw.
“Competition for deposits is at an all-time high, but the RBA is trying to encourage consumers to spend, so we’re pleased to assist by passing on a 20 basis-point cut today."
Real estate companies including Ray White and Colliers International welcomed the decision, but Colliers says further cuts are needed to stimulate the sector.
In a separate report, research company Dun and Bradstreet says the immediate outlook for retail sales is “pessimistic”.