Westpac, Commonwealth Bank Reduce Home Loan Rates By 80 Basis Points

October 7, 2008 9:57 a.m. EST

Sydney, Australia (AHN) - The Australian Central Bank reduced on Tuesday its benchmark interest rate by one percent. It is the largest cut made by the bank since a recession hit Australia in 1992 and the cut triggered speculation that other countries will follow suit.

With the rate decrease, two times larger than forecasts, the overnight cash rate target went down to 6 percent, the lowest level since November 2006.

Australian Reserve Bank Governor Glenn Stevens was quoted by Bloomberg as saying, "An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers."

As a result of the rate cut, Australia's S&P/ASX 200 stock index went up 1.7 percent to 4,618.7 at the close of trading in Sydney. It reversed the 0.5 percent decline on Monday.

Following the central bank's move, Westpac and Commonwealth Bank announced it will decrease their variable home loan rate by 80 basis points. Two hours after the Reserve Bank's rate reduction was announced, Westpac said it will lower its variable home loan rate to 8.56 percent starting Oct. 13.

In the afternoon, Commonwealth Bank cut its standard variable home lone rate to 8.53 percent and basic variable home loans to 8.82 percent for all new and current borrowers beginning Oct. 13.

Other Australian banks have not yet announced their moves, although Aussie Home Loans, a non-bank lender, said it will cut is variable rate loans effective Oct. 13 by 75 basis points. National Australia Bank is waiting for the market to calm before announcing a rate cut, while ANZ Bank said it was still reviewing its rates.