As many analysts have predicted, the Reserve Bank of Australia cut the cash rate to a fresh record low of 1.75 per cent during its May board meeting, 25 basis points lower than the previous interest rate. Subsequently, Australia’s big four banks—National Australia Bank, Westpac, Commonwealth Bank, and ANZ—also cut their variable home loan rates.

NAB and CBA passed on the full cut to bring their variable rate to 5.35 per cent. Westpac slashed its variable rate to 5.43 per cent while ANZ reduced its standard variable home loan rate by 19 points. ANZ was the last of the banks to drop home loan rates.

“Housing affordability remains very challenging, and homeowners deserve to receive their fair share of today’s rate cut,” said Shane Garrett, Housing Industry Association senior economist.

According to NAB chief economist Alan Oster, the RBA’s main motivations for the cut were the underlying inflation rate—which rose by just 1.5 per cent, its weakest since 1983—and the appreciating Australian dollar. RBA’s target band for inflation is two to three per cent.

“This cut is not about the strength of the wider economy, this is about an inflation-targeting bank doing just that,” Oster said. “If they didn’t act, the downside risks for the economy from falling inflation and an appreciating currency would be just too high.”

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