Reserve Bank of Australia makes surprise interest rate cut
The Reserve Bank of Australia has made a surprising decision to cut interest rates to just 1.75% just hours prior to announcing the Federal Budget; the Australian Dollar plummeted 1.5 cents in just 20 minutes following the announcement, though, homeowners and the property industry will welcome the decision. National Australia Bank and Bank of Queensland have already said they will pass on the full value of the 0.25% point reduction to customers.

Australia's interest rates have been cut to a record low of just 1.75 per cent just hours ahead of the Federal Budget.

The Reserve Bank of Australia announced the surprise decision to cut the official interest rate by 25 basis points to 1.75 percent, just hours before the federal budget is handed down.

Immediately after the announcement the Australian Dollar plummeted 1.5 cents in just 20 minutes from 77.1 cents to 75.6 cents at 2.45pm AEST.

Homeowners and the property industry will welcome the decision, which follows 12 months of rates remaining unchanged on the already low two per cent.

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Australia's interest rates have been cut to a record low of just 1.75 per cent just hours ahead of the Federal Budget

Immediately after the announcement the Australian Dollar plummeted 1.5 cents in just 20 minutes from 77.1 cents to 75.6 cents at 2.45pm AEST

HOW MUCH YOU COULD SAVE Assuming loan 25-year standard variable rate at an average new interest rate of 5.4 per cent. Loan size - new monthly repayment - reduction * $100,000 - $608.13 - $14.95 * $150,000 - $912.19 - $22.42 * $200,000 - $1216.26 - $29.90 * $250,000 - $1520.32 - $37.37 * $300,000 - $1824.39 - $44.84 * $350,000 - $2128.45 - $52.32 * $400,000 - $2432.52 - $59.79 * $450,000 - $2736.58 - $67.26 * $500,000 - $3040.65 - $74.74 (Source: CommSec)

Repayments on a $300,000 mortgage will drop by $45 a month on average if retail banks fully pass on Tuesday's 25-basis-point cut in the cash rate by the Reserve Bank.

The RBA said the decision to cut rates is because of a surprising fall in the inflation rate.

In a statement it cited commodity prices steadying after significant declines in the past two years.

But it said Australia is continuing to rebalance following the mining investment boom and the GDP increased in 2015, particularly in the second half of the year. It expects growth to continue in 2016.

Prime Minister Malcolm Turnbull has cited the RBA's decision to cut the official interest rate as support for his government's plan to transition the economy from the mining boom.

Prime Minister Malcolm Turnbull has cited the Reserve Bank's decision to cut the official interest rate as support for his government's plan to transition the economy from the mining boom

Mr Turnbull read from Governor Glenn Stevens' reasons for an historic 25-basis-point reduction during question time, just hours before the release of the federal budget.

'The governor's remarks underline the risk posed by the opposition to that successful transition (from the mining-construction boom),' he said on Tuesday.

The NAB announced it would pass on the 0.25 rate cut to its home loan customers.

A statement from the bank says its variable rate for home loans will reduce from 5.60 per cent to 5.35 per cent. The new rates will be effective May 16.

NAB executive Gavin Slater said the bank considered competition, regulatory capital requirements and funding costs.

'Today's decision balances the needs of our home loan customers with our shareholders,' Mr Slater said.

ANZ has predicted another cut will be made by the RBA but have not shown any indication they will follow NAB's lead.

'This is unlikely to be a 'one-and-done' cut,' spokeswoman Felicity Emmett told ABC.

'The RBA nearly always follows up with another cut and we expect this time to be no different.'

She said the rate cuts will prevent further increase in the Australian dollar and that it is likely to have peaked.