Reserve Bank cuts interest rate to 4.25%

TREASURER Wayne Swan has demanded banks fully pass on today's interest rate cut and bring "Christmas cheer'' to families and small business.

Households and retailers have been given an early Christmas present with the Reserve Bank cutting the official interest rate to 4.25 per cent as insurance against a further downturn in Europe.

It's the second consecutive month that the RBA has cut the rate.

The 25 basis point reduction is expected to boost consumer spending in the key Christmas period and insulate the economy against the worst of the global downturn.

It will also knock about $48 a month from the average $300,000 variable loan if the big four banks pass it on in full. Mr Swan said combined with last month's rate cut it would mean a $100 a month cut to mortgages.

Mr Swan said banks should pass the rate cut through in full and follow the lead of the Bank of Queensland, which quickly became the first bank to follow the RBA's lead, reducing the interest rate on its standard variable rate home loans by 25 basis points to 7.36 per cent.

Mr Swan said there would be no justification for the banks not passing it on in full and said he stood by his attack on the National Australia Bank when it last month only passed on 0.2 percentage points.

"If people are unhappy with their financial institution they do have the option to walk down the road,'' Mr Swan said.

"But as this decision shows, we are facing turbulent times in the global economy with serious risks arising from Europe,'' Mr Swan said.

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