Interest rate drop will take pressure off

THE Johnston family of Charlestown are looking forward to a family holiday following the Reserve Bank of Australia’s interest rate cut yesterday.

There was reason for celebration for Hunter home owners as the central bank reduced the cash rate by a full 50 basis points from 4.25 per cent to 3.75 per cent.

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Andrew Johnston said the cut would ease the pressure on repaying the family’s mortgage after an increase in bills for insurance and electricity over the past year.

‘‘As long as the banks pass on the full half per cent it basically gets us back to where we were at the start of last year,’’ he said.

‘‘It looks like we’ll be saving about $150 a month. So it makes it a bit easier and hopefully we can save for a family holiday at the end of the year.’’

The cut was the largest since a 100 basis point drop in February 2009 during the global financial crisis.

It was also the first reduction for 2012 and the third consecutive cut following two last year.

The Australian dollar fell by more than US0.5¢ after the RBA’s decision, dropping from US104.09¢ to US103.50¢ and down on the US104.58¢ at Monday’s close.

The cut will equate to about $96 in savings a month on mortgage repayments of $300,000.

Reserve Bank of Australia governor Glenn Stevens said the reduction was necessary to deliver the appropriate level of borrowing rates.

‘‘This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated,’’ he said.

‘‘In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years.’’

Treasurer Wayne Swan said a family on a $300,000 mortgage was paying $3000 less in repayments now than when the Howard Coalition government left office in 2007.

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