Prime Minister Tony Abbott has conceded that an interest rate cut is not good news for everybody, in particular self-funded retirees who rely on high interest rates to give their savings a boost.
However, the PM insisted that all in all a lower rate would boost confidence, which is good for the whole economy.
The Commonwealth Bank was the first of the big four banks to cut their standard variable mortgage rate on Wednesday, in line with a 25-basis point reduction in the Reserve Bank’s cash rate to 2.25 per cent. The Westpac followed shortly afterwards.
Mr Abbott said the cut in rates, lower petrol prices and a drop in power prices are a result of his government scrapping the carbon tax, and will lift confidence and strengthen the economy. While he said he understands that lower interest rates are not necessarily good news for self-funded retirees, he said they also want to see a strong economy.
“The great thing about older Australians is that they have our nation’s interests at heart,” Mr Abbott told Macquarie Radio on Wednesday. ”I think whatever the impact might be on their personal finances, they want to see our country well managed, they want to see the economy strong.”
Tuesday’s rate cut by the RBA was the first in 18 months, citing the prospect of economic growth being below trend for longer than expected and a higher peak in the unemployment rate.
Treasurer Joe Hockey, who expects the cash rate will be cut even further in the months ahead, said all banks must pass on the latest reduction in full to homeowners, small business and credit card holders. “The flow-through to the Australian economy is significant, and importantly it must be immediate,” the treasurer told ABC radio.
– with AAP