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Official cash rate cut to historic low

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At its meeting on 5 May 2015, the Reserve Bank has cut the official interest rate by 25 basis points to a record low of 2.0%. Wow!

In a statement accompanying the announcement, RBA Governor Glenn Stevens cites some ongoing economic weaknesses as the catalysts for the decision.

  • “Commodity prices have declined over the past year, in some cases sharply,” said Mr Stevens.
  • “Looking ahead, the key drag on private demand is likely to be weakness in business capital expenditure in both the mining and non-mining sectors over the coming year.”
  • “The economy is therefore likely to be operating with a degree of spare capacity for some time yet.”

What? Are you kidding me …. Spare capacity?

  • What does that mean to young people trying to buy a house in Melbourne or Sydney – no spare capacity there!
  • Are my kids ever going to be able to buy a house?
  • What does that mean to our more mature people trying to scrape through on investing their hard earned cash in deposits – they are probably now getting negative returns on their money when inflation is deducted.

Again what spare capacity do they have?
That is my concern and the concern of many millions of Australians – we the “simple” people don’t understand “spare capacity” and we don’t understand why a property market that is already out of control has just been stoked further!