The RBA just cut the cash rate to a record low

Yesterday, the Reserve Bank of Australia reduced the cash rate by a quarter of a percentage point to 1.25% - the lowest it's ever been.

Explaining the decision, RBA Governor Philip Lowe said that the cut came after two-and-a-half years of keeping the rate steady.

So, why was it done?

"At its core," he explained, "today's decision was taken to support employment growth and to provide greater confidence that inflation will be consistent with the medium-term target."

He clarified that the rate cut shouldn't be seen as a response to further deterioration in the Australian economy since early May - in fact, he said, the economy's outlook remains "reasonable."

Lowe said the main risks to the economy are intensifying trade disputes, but that despite this, "Australian economy is still expected to strengthen later this year, supported by the low level of interest rates, a pick-up in growth in household disposable income, ongoing investment in infrastructure and a brighter outlook for the resources sector."

Treasurer Josh Frydenberg said the cut would be "welcome news for Australian households and businesses and it will mean lower mortgage costs and lower interest payments."

"It is the Government's expectation," he continued, "indeed it is the public's expectation, that banks should pass on in-full to consumers the benefits of reduced funding costs as a result of the Reserve Bank's decision."

Frydenberg also commented on the news that some banks had passed on the full rate cut to consumers, while others had made smaller reductions. On the latter, he said "Actions like this don't give the Australian people any comfort that the banks have changed their behaviour. And as Treasurer of Australia, I have made it very clear to the banks that the public have a legitimate expectation that they will see the full benefits of rate cuts such as announced by the RBA today."

We will keep you posted as to any further responses to the RBA's record decision.

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