Christmas Rate Cut Likely if the Banks don’t Play Scrooge
The likely hood of an decrease in the official cash rate has been seen to have increased as the debt crisis in Europe started to affect local banks. Whether the banks opt to pass on the rate cuts to home owners is not always a guarantee.
On November 1, the Reserve Bank of Australia cut their rates by 0.25% with a possibility that the RBA will cut the official cash rate again in December.
The deteriorating situation in Europe has increased the probability of a cut the official cash rate in December.
Without another Reserve Bank of Australia Board meeting until February if there is no rate cut in December, rates will remain the same for a minimum of two months.
The crisis in Europe has moved on from Portugal, Ireland and Greece to Italy and some parts of France and even Germany. Last week, the pillar of strength of the euro zone saw its bond yields go up.
In addition to this, a credit crunch, which is a lot like the one ignited by the fall of the Lehman Brothers back in 2007 has taken hold, which is making it more difficult for relatively safe banks in Australia to borrow the money they are offering to businesses and families. During the worldwide financial crisis, the banks were hesitant to lend to one another because they were a bit suspicious that sub-prime mortgages, which were very risky due to America’s downturn.
This time though, the banks are hesitant to lend to each other due to their fears regarding their exposure to the debt crisis of Europe, which they could not be certain struggling countries could pay back.