 February interest rate cut
Australia is expecting to see interest rates fall next month when the Reserve Bank of Australia (RBA) meets for the first time since December 2008. The February meeting is likely to result in a 50 basis points cut for official rates, with some economists even going as far as to predict a cut of 100 basis points.
If the latter proves true, official cash rates will fall to 3.25% and home loan rates could fall from around 7% to below 6% for some home loan products. This is a drastic difference to the first half of 2008 when we saw interest rates for mortgages rise to nearly 10 per cent.
With official rates already close to zero in the US, it was decided to leave rates untouched yesterday, while New Zealand moved to cut their rates by a dramatic 1.5 per cent this morning.
ABC business editor Peter Ryan says unlike the US, Australia does have room to move.
"...even before the IMF's gloomy predictions out overnight, effectively for a global recession, economists here were tipping more dramatic rate cuts and also with yesterday's confirmation that inflation pressures are easing, economists are factoring in a one percentage point cut when the Reserve Bank meets next Tuesday." Mr Ryan said.
The RBA had cut interest rates a total of 300 basis points in the past five months bringing the official rate down to 4.25 per cent, the lowest rate in almost five years, as domestic growth stalled.
Rising unemployment is leaving many Australians fearful for their financial future, and spending amongst many sectors is still down. New home loan approvals are still falling. According to the Australian Bureau of Statistics financing to build new houses fell a seasonally adjusted 0.3 per cent in November.
According to economists who were predicting better housing figures, the increase in the number of home loan approvals is disappointing, and the underlying threat of job cuts could be a key factor.
Tomorrow’s employment data is expected to show the unemployment rate reached 4.5 per cent in December from 4.4 per cent, following the loss of 20,000 jobs.
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