RBA announces first interest rate cut in 31 months

It isn't very often that sombre looking businessmen in different tones of black, navy and grey manage to captivate the nation's attention.

But news of an interest rate cut had small business owners and mum and dad investors across the country glued to their TV screens over the past two days.

Australian Retailers Association (ARA) executive director Russel Zimmerman said: "Retailers are rejoicing after yesterday’s interest rate cut, which has given them hope for a more prosperous Christmas trading period."

But the ARA was also quick to point out that consumers weren't the only group wanting to see the cuts passed on and that small business owners may also benefit from the cut.

Small enterprises, many of which are still struggling after the devastating impact of the GFC, were also said to be in need of a break.

"Retailers need to be able to manage their costs in such a way that they are able to operate efficiently as well as keep Australians employed," said Mr Zimmerman.

In Australia, the retail sector employs over 1.2 million people of which roughly 44 per cent are female.

It also brings in an estimated $240 billion making it one of the country's largest commercial sectors.

So far three of the country’s major banks including the Commonwealth, Westpac and Bank of Queensland have said they will pass on cuts to consumers, but it is not clear whether these updates will extend to small businesses.

Over the last year financial reporters and industry experts have been forecasting cuts without them actually eventuating.

And while more than just a few people worried that Melbourne Cup festivities might get in the way of the big reveal leaders breathed a near uniform sigh of relief after the figures were made public.

For those who may not be up-to-date on the latest RBA development a breakdown of the news is listed below.

Glenn Stevens, governor of the RBA, suggested that improved economic conditions in a number of industries and steady growth across the country the central bank felt comfortable that it could cut interest rates without reducing productivity.

"The Bank's current judgement is that inflation is likely to be consistent with the two-three per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme," he said.

A stable economy meant that the cash rate, which is the overnight money market interest rate,
could be dropped without fear of rising inflation.

This led to the decision to cut interest rates by 0.25 per cent, lowering it to a mark of 4.5 per cent. 

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