Australia

Rate cut ends assumptions about economy

All of the big four banks have announced interest rate cuts after the RBA reduced its rate again. (AAP)

The federal government has defended its management of the economy after this weeks central bank rate cut.

Finance Minister Mathias Cormann insists the federal government is "kicking in the same direction" as the central bank in trying to shore up the economy.

The Reserve Bank of Australia on Tuesday cut the official cash interest rate by 0.25 percentage points, for the second consecutive month, to a historic low of one per cent to boost activity.

But RBA Governor Philip Lowe also stressed easier monetary policy was not the only way to drive the economy and, pointedly, highlighted the steps the government could take.

"One option is fiscal support, including through spending on infrastructure," Mr Lowe said in a speech hours after the rate cut.

"Another option is structural policies that support firms expanding, investing, innovating and employing people. A strong, dynamic, competitive business sector generates jobs."

Senator Cormann said the government was on the RBA's wavelength.

"We are kicking in the same direction as the Reserve Bank is, to ensure that we continue to build a stronger economy and can continue to create more jobs," he told Sky News on Wednesday.

The minister pointed to the government's growth policies including its ambitious free-trade agenda and flagship $158 billion tax cuts package.

The coalition is also spending on infrastructure and bringing in reforms to lower power costs, he added.

The Australian economy faces global headwinds and local challenges, including the impact of the drought and flooding, soft consumer spending and rising unemployment.

"Our budget was put together in the context of all of the economic information that the Reserve Bank is acting on as well. It is a pro-growth budget," the minister said.

But Labor shadow treasurer Jim Chalmers argues the government isn't doing enough and the RBA rate cuts prove it.

"We need the government to recognise that the economy is floundering and middle Australia is struggling," he said in Canberra.

"And we need a government which is actually prepared to do something about it."

Meanwhile, only one of the big four banks - ANZ - has promised to pass on all of Tuesday's 0.25 percentage point central bank cut to its variable home loan customers.

But ANZ is playing catch up after delivering only 0.18 percentage points of last month's 0.25 percentage point RBA cut, when all the other banks passed it on.

This time, Commonwealth Bank will cut the standard variable rate by 0.19 percentage points.

National Australia Bank will also reduce its variable home loan rate by 0.19 percentage points while Westpac will cut its rate by 0.20 percentage points.

Stay up to date with SBS NEWS

  • App
  • Subscribe
  • Follow
  • Listen
  • Watch