Not only did the Reserve Bank of Australia (RBA) drop the cash rate by 25bps to 1.50% (to even further historical lows) on Tuesday 2 August but the Bank of England (BoE) also dropped the cash rate by 25bps to 0.25% today, Thursday 4 August. Its been a big week for the cash rate globally.

Today the BoE cash rate cut was hardly a surprise with the devastating market effects from the EU referendum. The referendum was held on 23 June for the public to decide whether to remain in the European Union, an economic and political partnership between european member countries to foster economic co-operation. Since the UK joined the EU 43 years ago there are 28 member countries and in this time only two countries had left (Greenland in 1985 and Algeria in 1962). Since the referendum global markets went into shock significantly impacting currency and asset values.

The BoE has not cut the cash rate since 2009 during the credit crunch and since then global economies still have not recovered to levels prior. The BoE is trying to stimulate the economy and mitigate some of the referendum impacts, implying a downturn was inevitable without monetary policy changes. Stay tuned for further cuts.

The RBA cut the cash rate this week to promote sustainable growth in the economy while inflation returns to target, citing the global economy is growing at a lower than average pace. One of Australia’s main export is commodities, of which prices have been in decline for years. In addition, China’s lower than expected growth impacts Australia as a major trading partner. The Labour market shows mixed results with business investment significantly down. So not one or two major and/or new factors but just a general continuing of growth lower than expectations has prompted the RBA to further stimulate the economy. I wouldn’t expect another cut in September but there could be a further cut by the end of the year.

Once again, a lower cash rate is good for borrowers via cheaper debt but not good for savers (especially retirees) with lower interest income earned.

Keep your eye on the US election on 8 November, which could have far reaching impacts on all major economies depending on the outcome…