This past week the RBA released their minutes on the Monetary Policy Meeting from Melbourne Cup Day. As you’ll remember, on that day the cash rate was cut from 4.75 per cent to 4.5 per cent, which the Board described as “broadly neutral”. In saying that, the RBA basically believes that interest rates are now at a point where they will neither stimulate economic activity nor restrain it. This means the prospect of a December rate cut is low at this stage, unless the world takes a turn for the worse.

The RBA never really makes its mind up until at least a few days before each meeting, and has been known to change its view on the day. This means that every meeting is “live” and anything can happen, which is why the decisions are so hard to predict. If you’ll think back to October 2008, the RBA slashed interest rates by one full percentage point.

The next month they slashed rates again by 0.75 of a point. And then in December 2008 and February 2009 they cut rates by another percentage point each month. This shows that if local or global economic circumstances require it, the RBA will move and can move quite dramatically. This month’s board minutes made it clear that whilst the final decision was a cut, the RBA still felt that it was a ‘close call’ – in fact the board members were split in their decision.

They highlight a number of reasons for each argument including high terms of trade, the resource boom, inflationary pressure, and of course the global economy. Let’s not forget the Aussie dollar which is still above $US1.00, and makes life tough for all our exporters and import-competing industries. House prices are still slowly slipping, and the big banks have been slow to pass the rate cut onto small businesses. Let’s face it – it’s both a tough time and a confusing one. The reason you need to know this is because the RBA’s monetary policy decisions are just as important for you as they are for the government and the banks, especially if you have a mortgage or money on deposit.

When the Reserve Bank sets the cash rate, it directly affects all of us. So what can you do? Well, pay attention for one thing. The current lending and deposit rates are readily available on various websites and in the daily newspaper, so have a look. I’m always amazed when I speak to people and they can’t tell me their current mortgage rate or how much interest they are earning on their savings. In today’s economic climate and with so much information readily available, there is no excuse for pleading ignorance.

* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.