Australia joins club deflation, cuts cash rate.

The Reserve Bank of Australia (RBA) has today acknowledged the Australian economy is slowing more rapidly than forecast, deciding to slash the official cash rate by 25 basis points to a record low of just 1.75 per cent.

It follows ugly stats out last week from the Australian Bureau of Statistics (ABS), showing Australian consumer prices are now falling. In the March quarter, CPI fell 0.2 per cent on the back of weaker clothing and footwear prices (-2.6%), transport (-2.5%), communications (-1.5%), recreation (-1.0) and the all important staple, food and non-alcoholic beverages (-0.2%).

In a statement on today’s monetary policy decision, the central bank noted:

Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

The big four banks, facing a tick up in bad debts provisions have acted immediately, passing on the full 25 basis points – all except ANZ. ANZ is arguing higher wholesale funding costs have forced it to only pass on 19 basis points. ANZ today announced its cash earnings have plunged 24 per cent to $2.8 billion due to problem loans resulting from low commodity prices.

» Statement by Glenn Stevens, Governor: Monetary Policy Decision – The Reserve Bank of Australia – 3rd May 2016.


  1. The workers income purchasing power, from 1976 to the present, has diminished by a ratio of 20 : 1 minimum in real estate.

  2. it seems as though the Australian banking system is at real risk of a serious event. I don’t have much money but what I do have saved away is in an Australian Bank. What is a realistic way for me to ensure that my money retains it’s value in a safe place?

    Please do not troll me I am not entirely financially literate. All I know is that I should always save money and never use credit or lend with my own cash.

  3. I have zero economic experience or knowledge, but did I just here right?

    If financial institutions find figures unfavourable, they’ll take their buisness down the road. S&P and Moody’s are just Coles and Woolies in my book.

  4. Just a thought for today:

    When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you. . . you may know that your society is doomed.”

    “Atlas Shrugged” – Ayn Rand

  5. @2

    About all you can do is make sure your money is with a government guaranteed institution. I’m not sure what the limit is now, IIRC $250k per person per bank.

    Now, the key to this is, almost no-one ever asks their bank about this, the staff don’t know or aren’t even trained in this.

    Last time we moved a big heap of money, we asked the kid at the counter (that’s unfair I suppose, he would have been early 30’s). He didn’t know what it was, went and asked the manager behind closed doors, and after 10mins returned and sprouted the exact info we had just look up on the apra/banking web sites. Sadly the info was old and out of date. It seems the govt. doesn’t want this info out in the open.

    Now, can I comment on the budget. Two massive problems, no-one is mentioning.
    A: My god, it’s a boring, uninspiring budget. Doesn’t the PM want us to be the innovative country? We’ll have a colony on Mars before we can project a surplus.
    B: They’re after the few guys who have built wealth in super. Yes, sure, there are the super rich who abuse the super system, but of the 4% of Australian’s who are full self funded retiree’s I suspect 3/4s of them are not uber rich. So now they are taxing these guys with over $1.6 million in super…..

    If it’s in a term deposit (lets face it, if it’s your life savings, you need to be pretty cluey to keep it in the ASX or property given how volatile either are) you’re earning 2.45%…..

    So on $1.6m, you earn $39k per year…Less than the aged pension…. You earn less than a bum, but they still tax you????? Wow, how these politicians can walk the streets without fear or security is beyond me…………

    But if you sink all that money into a PPOR, you don’t pay any tax, and still get the whole aged pension!!!!!!!!!!!!!!!!!!!!!!!!!!

    This stinks!!!!!!!! It’s practically forcing people to sell all their assets, only to plunge it into a PPOR, to then scum off the tax payer…….. I know plenty that have done this, especially farmers and business people who sell their farm/business and can’t stomach the thought of after paying tax for years, pay it out again, and again, and again……..

    Of course, if you’re wise, you’ll know property is going to collapse, when, I don’t know.

    I’m a conservative voter, but I’ve never been less impressed. There really doesn’t seem to be anyone in politics thats got anything on their agenda other than protecting the banks and their big business buddies.

  6. @ Matty

    Don’t get too enthusiastic about the government guarantee for bank accounts. The new bail-in provisions will bypass the guarantee as the banks will offer their own (worthless) shares as compensation for the loss. Hence no loss NO reimbursement. Sadly the mattress or precious metals still remain the best options for that spare cash.

  7. The Liberal party wants us all in debt forever because an indebted population votes conservatively.

    RBA should not be setting rates! It’s market distortion.

    Negative gearing is market distortion too. Turn-ball is a hypocrite: Claims to stand for the free market, but is also committed to distorting it with negative gearing. Never expect anything but hypocrisy from Liberal governments.

    Who benefits from increasing the value of property and capital relevant to work? Rich hypocrites who own all the property and capital.

    How much is Glenn Stevens being paid to open his mouth every second month to say “Cut rates?” A trained monkey or cockatoo could do this. What an unimaginative solution to economic slowdown. Obviously not working if he needs to do it for the 100th time! How about focusing on HOUSING AFFORDABILITY to free up some cash so people can spend and support jobs??

    How much property does Glenn Stevens own? How does that figure into his decision? Could it be that he’s fearful of his own property prices going down? Does he have a vested interest in this decision? Is he surrounded by wealthy, multi-property owning old GITs who pressure him on this decision?? If so, this is treason, and he should be tried for conspiring to lock millions of Australians into a lifetime of serfdom in order to profit him and his circle of hypocrites.

    The people in power are trying to make it harder and harder and less and less desirable to own actual cash and not be in debt. They want you glued to your 9-5 job forever and forced into voting for them so they can continue raking in their half a million dollar pensions regardless of how many properties they own.

  8. Well those in the know knew this was coming thats why I locked up my deposits at 3.15%. Australia is going to learn the hard way it is not a special snowflake as the interest rates head toward zero just like it did in Europe.

    Of course deflation had to come, the terms of trade and everything else was pointing to it, no surprises there. In very simple terms, people dont have the money to pay bullshyt prices for things anymore, because they are so maxed out on credit. And tightened lending procedures only helps deflation along.

    A 1.75% rate should be a major kick to already flagging business confidence. Deflation, recession, and property market crash, here we come . Interesting times ahead.

  9. Recent, extreme house price inflation feels like a pre-planned trap. First, create and widen the divide between investors & poor (or non-participants) by massive credit expansion and hence asset inflation. Non-participants are punished by losing behind & then steal their hard-earned savings by bail-ins. Small-time, rich-feeling investors get punished by a world-wide event leading to property burst resulting in massive house price crash. Negative gearing will finally serve the purpose to initially engage & later slaughter the greedy. Finally, slaves created from both sides. Now time to take their freedom away.

  10. @Jas2u

    Yes the system is designed to fail as history proves that all fiat currency eventually goes to zero. The plan is to print as much of it as possible (before it fails) from nothing and exchange it for your hard labour and real assets via debt(mortgage) The end result is of course control of the masses and governments while draining their wealth. The driving forces are the central banks owned by international cartels. The solution is simple abolish central banks and their currency printing.

  11. I don’t know where you get the information that the aged pension is more than 39k, it’s around 22k for a single person, and less for each person in a couple. 39k is hardly a pittance in retirement.

  12. @ # 11
    Pension is only $22K PA for a single person if you have no home or assets. If you own your own home and do not qualify for the other supplements your pension is as low as $16K pa. Not much better than the dole.

  13. @11


    Just under $35k in CASH payments (no tax due), then add in free health/transport and all the other goodies, it’s around the $39k figure. Conservatively.

    You are right regarding $39k being significant. Last I knew the median wage in SA was ~$38k….. Something is very broken with the countries finances when normal retirees have a higher income than the working class. The reality is the younger generations are in no way comparable to the baby boomers. The demographics, and hence finances are totally different.

    Even ignoring the private debt crisis yet to come, Australia is positioned for a massive economic shake up. The amount of wealth of the middle and working class to be destroyed will be simply mind boggling.

  14. What happened to “a couple needs $1 million in the bank plus a house to retire comfortably”. At say 2.5% p/a bank interest it will return $25,000. Why bother just blow it all and collect the $35,000 from the Government.

  15. On the interest front the LNP stand is if interest rates are constantly falling the economy is failing.
    If you dump your leader in the first term of government you are not capable of running a government.
    According Turnbull in 2009, a double dissolution election after a budget is about the job security of the PM.

    Being about 12 years away from retirement(?) if I make it, I have many decisions to make.
    I don’t have 1.5-2 million, but I have a house and enough to effect pension availability.
    If rates go the way of the rest of the world I will be better off hiding it under my bed or spending it, if rates go back to 7% I could do it.
    The trouble is both sides of politics seem happy to drive deposit rates to zero or negative, but are happy for credit cards to stay at +20%.

    My house is not in a high priced area, so in the words of In Vino Veritas blow it all and collect from the Gov.
    Not what I wanted to do but the best way probably.

  16. @15.

    I know a fellow, who’s selling everything, touring the world, coming home and declaring he’s broke, he NEEDS the pension. Of course he wont spend all his money, it’ll be in under the bed like you say.

    The risk with spending it all, is do you really think the world economy can recover from -ve interest rates?…. What happens when we come out the other side?… Will it be a nice smooth transition, and employment will pick up, inflation will be steady and society lovely?

    Hell, no. I highly doubt anything good is going to happen, so relying on the government in 15 years time is a pretty silly idea, to me. I’m pretty sure, even if there’s no world war, civil war, revolution or uprising, that the pension will barely pay for a roof over your head and soup. That’s just me though.

  17. No, the aged pension is 22k per year, per single, that own their own home. If you own another house on top of that, then the rates drop depending on rental income, and the value of the second property. The place of primary residence, that is, a pensioner’s home, is not part of the asset test.

  18. By the way, the rate of New start (unemployment rate) is around 12 500 per year for a single person, which is around $250 per week, per person.

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