RBA cuts rate to record low 0.25% & Starts up the cash printing with quantitative easing

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RBA cuts rate to record low 0.25% & Starts up the cash printing with quantitative easing

The Reserve Bank (RBA) has cut interest rates to an all-time record low of 0.25%, and has said it will start quantitative easing (QE) for the first time in Australia’s history.

This historic rate cut marks the first time the central bank has cut rates outside its ordinary monthly meeting since 1997.

And within minutes the Commonwealth Bank of Australia (CBA) dropped its fixed home loan rate to 2.29% which is fabulous news for home-owners.

Quantitative easing (QE) is when central banks print money to buy corporate or government bonds.

In buying government or corporate bonds, the central banks push up the price of bonds and by doing so lower the yield, or long-term interest rate that is paid on them.

This encourages banks to lend more money to individuals and businesses plus it encourages businesses to invest and consumers to spend more.

Quantitative easing signals to the markets that the Reserve Bank is serious about keeping the cash rate at very low levels for a very long time,” independent economist Saul Eslake said.

“Another purpose is to encourage investors to take on riskier assets, partly by buying up government bonds so that there aren’t as many available for the private sector, and partly by pushing down interest rates.”

The RBA has stated that this is the lowest cash rate it will go to, and there will be no more lowering from this point on.