Photo: The RBA has responded to a core inflation reading of 1.5 per cent. (AAP: Joel Carrett)

Reserve Bank cuts interest rates to new low of 1.75pc

By business reporter Stephen Letts

3 May 2016,

(Translation of this article appears in Arabic section)

The Reserve Bank of Australia has moved to head off fears about deflation, cutting its official cash rate by 25 basis points to a historic low of 1.75 per cent.

It is the first change in interest rates since May last year, when rates were cut 25 basis points to 2 per cent.

Before the decision, the market had priced in roughly a 50 per cent chance of a cut after last week's surprisingly weak inflation figures.

Key to the decision was the reading of core inflation — the RBA's preferred measure — at 1.5 per cent, the lowest reading on record and well below the target band of 2 to 3 per cent.

If the 25 basis point cut was fully passed on to home loans by the banks, it would equate to a $43-a-month saving on a typical 25-year $300,000 mortgage.