 Interest rate cuts predicted for February
Interest rates could fall to their lowest level since 1943 next week, if the Reserve Bank of Australia (RBA) does as expected and cuts rates by 1 per cent.
Out of 17 economists surveyed by AAP, nine were tipping a dramatic 1 per cent cut, while others were more cautious instead predicting a cut of 0.75 per cent. If the RBA do cut 100 basis points off the rate on February 3 the cash rate would fall to 3.25% and stimulate cuts to home loan rates.
Lenders will be considering passing on the cut in full to mortgage holders, which would save home borrowers on an average $250,000 mortgage around $162 a month.
Westpac senior economist Justin Smirk said the RBA needs to avert a prolonged recession and to reduce interest rates by 100 basis points next week would be the best decision.
UBS economist George Tharenou said the RBA would slash interest rates more aggressively in 2009 than it did during the last recession, starting with a 75 basis point cut next week.
"We have taken the view global deflation is more of a threat in 2009 than the early 1990s recession,'' he said.
As Australia faces it's first recession in 18 years the government is planning to implement a second stimulus package within weeks, this time targeting low incomes and businesses. The first stimulus package handed out one off bonuses to families and pensioners.
With reports this week that all major economies are in the grips of incredibly slow growth, and with unemployment tipped to rise to 7 per cent by the end of the year, the RBA and the government are moving to rescue Australia's economy immediately.
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