Rate impact stymied by election campaign

The Reserve Bank of Australia has cut the cash rate to a new all-time low of 2.5 per cent. Source: AAP

BUSINESS groups are warning the latest interest rate cut won't have an immediate impact because of uncertainty generated by the federal election campaign.

The Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to a new all-time low of 2.5 per cent, as widely tipped by economists.

Three of the major banks have already passed on the reduction in full - although Westpac's cut was by 28 basis points to a standard variable rate of 5.98 per cent.

Many smaller lending institutions also matched the central bank.

People with an average $300,000 mortgage will be around $45 a month better off on their home loan repayments.

RBA governor Glenn Stevens had previously noted the inflation outlook could provide some scope to ease policy further, should that be required to support demand.

"At today's meeting, and taking account of recent information on prices and activity, the board judged that a further decline in the cash rate was appropriate," he said in a statement.

Treasurer Chris Bowen says the rate cut is good news for families and business.

But shadow treasurer Joe Hockey said if the economy was performing well the RBA wouldn't have moved.

"It's not a great credit to this government at all," Mr Hockey told reporters in Canberra.

Mr Bowen pointed out that in past elections the coalition has gone to the Australian people with a solemn pledge that interest rates would always be lower under a coalition government.

"Now all of a sudden, because interest rates are at record lows under a Labor government, we have Mr Hockey saying this is somehow a bad thing," he told reporters in Sydney.

"How negative has this opposition become?"

However, Mr Hockey said when former Liberal leader John Howard made that pledge in October 2004 economic circumstances were different with unemployment at 5.1 per cent rather than 5.7 per cent now and economic growth was four per cent instead of 2.5 per cent.

Then the cash rate was 5.25 per cent compared with 2.75 per cent now.

Yasser El-Ansary, general manager Institute of Chartered Accountant Australia, said the rate cut confirmed that business in the non-mining sectors was continuing to do it tough.

"While the announcement will help drive confidence for businesses and households, the current election campaign does mean people will continue to be cautious about spending until the election result has been decided," he said in a statement.

Australian Chamber of Commerce and Industry chief executive Peter Anderson said assistance to help the economy cannot rely on interest rates alone.

"Clearly other areas of economic management are falling well short of the mark and dragging on confidence," he said in a statement pointing at the federal government.

"That includes not delivering on budget undertakings, poorly targeted spending, and a series of tax increases."

Australian Industry Group chief executive Innes Willox hoped the rate cut would result in further falls in the exchange rate to help lift business competitiveness.

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