Cba First To Lower Home Interest Rates

Home buyers will benefit from a new round of interest rate cuts after the unexpected reduction in official rates by the Reserve Bank yesterday.

Commonwealth Bank, Australia's biggest home lender, was the first bank to move yesterday, shaving half a percentage point from its variable home loan rate to 9.25 per cent.

The other big banks were considering their options yesterday, but are expected to follow suit.

It will be the second round of cuts in two months, with home rates now set to be about 1.25 percentage points lower than they were at the start of June.

A home buyer with a 25-year mortgage of $100,000 will pay $88 a month less as a result of the two cuts.

The official cut will be felt across the board, with interest rates on personal loans, business loans and savings deposits also expected to fall.

Economists forecast that yesterday's cut in rates could be the first of several.

Even after the cut, Australia's official interest rates are 4 per cent above inflation. In other Western countries the average gap is 2.5 per cent.

Both sides claimed credit for the rate cut. The federal Treasurer, Mr Peter Costello, called it ``a down-payment on reducing the Budget deficit", and said the main threat to lower rates was ``Labor intransigence and obstruction" of the Budget.

The shadow treasurer, Mr Gareth Evans, said the cut was ``further proof that Labor left the economy in excellent shape", adding: ``The need now is to reinforce the positive impact of an interest rate cut, not to undermine it with a savagely contractionary Budget."

Announcing the cuts, the governor of the Reserve Bank, Mr Bernie Fraser, said they stemmed primarily from ``the improvement in the inflation outlook" coupled with the stagnation in the jobs market.

Mr Fraser warned that the bank would push rates back up if wage growth got out of line with its target of keeping inflation between 2 and 3 per cent.

The National Australia Bank and ANZ Bank said they would not decide on a change in rates until at least the end of this week. Westpac said its rates were ``under review".

Business welcomed the cut. The chief economist of the Australian Chamber of Commerce and Industry, Mr Steven Kates, said it was ``long overdue", with surveys showing fears of rising rates had been ``a major impediment to economic activity".

Economic data released yesterday by the Bureau of Statistics confirmed the harsh slowing of the economy.

The June quarter was a bad time for shops, with the volume of retail turnover falling 0.6 per cent in real terms. Victoria did slightly better than other states, with real sales increasing 0.5 per cent.

The total number of hours worked in Australia fell by 12.

4 million worker hours or 0.75 per cent in the first half of 1996.

The number of long-term unemployed edged up in seasonally adjusted terms in June, from 202,600 to 205,500. But in trend terms, it fell by 27,000 or 12 per cent between December and June.