Minutes show RBA cut 50 basis points because it knew banks wouldn’t

The Reserve Bank says it cut 50 basis points from the official cash rate last month because it knew the banks wouldn’t pass on the full rate to consumers, according to the bank’s latest minutes.

The minutes show it had accumulated information on demand and inflation, and judged that it was necessary for monetary policy to be relaxed.

“Members noted that interest rates faced by the general community had tended to increase a little since the board’s previous change to the cash rate in December,” the minutes state.

“They judged it to be desirable that interest rates move below those that had prevailed in December.”

“Accordingly, the board decided that a reduction of 50 basis points in the cash rate was, in this instance, necessary in order to deliver the appropriate level of borrowing rates.”

The minutes also noted the board found conditions were weak in the euro zone, “and the risk of an escalation of sovereign debt problems remained”.

“At previous meetings, members had agreed that if slower growth in demand resulted in more moderate inflation, it would strengthen the case for a further easing in monetary policy.”

This article first appeared on SmartCompany.