Interest Rates Slashed
All eyes and ears were awaiting the news this afternoon – and not to see which horse had come out on top. It’s Melbourne Cup day, and the luck was firmly within the homeowners grasp as the official interest rates were announced.
The interest rate fell today for the third consecutive month. Economists tipped a cut of half a percentage point today, however the rates cut exceeded that at 0.75 percent, taking the official interest rate from 6 to 5.25 percent.
Another cut of 25 to 50 basis points is possible before Christmas, analysts had predicted earlier. But it is unlikely that a cut this big was expected.
The cut was somewhat expected as the economy showed further signs of a dramatic slowdown yesterday as the global financial crisis continues to bite, with reports showing that house prices had fallen an average of 1.8 per cent in the September quarter.
Last month the Reserve Bank of Australia (RBA) stunned observers by taking the official interest rate from 7 to 6 per cent.
NabCapital senior economist David de Garis says that while a one percentage point cut is unlikely to be repeated, the RBA will still be looking to boost the economy.
Beyond the Cup day cut, opinion is divided on the future outlook for interest rates. Inflation may be showing tentative signs of easing, but it remains high and that may be enough to limit the scope for further rate cuts.
“The global financial tsunami, the financial shakeout and its impact on local markets and the local economy, you’re seeing expectations for growth significantly wound back,” Mr de Garis said.
“So some of its previous concerns about inflation reaccelerating at least have been alleviated to now.”
The focus now shifts to the retail banks. The Federal Government said it was hoped the banks would pass on the full amount of any interest rate cut.
“We would expect the commercial banks to pass through any official cut in interest rates as rapidly as possible,” Prime Minister, Kevin Rudd said.
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