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Latest Australian Interest Rates

The Reserve Bank of Australia slashed interest rates last week by 100 basis points, in a move to boost the local economy. The official cash rate is now 4.25% which is the lowest rate since December 2001.

A total of 300 basis points have been taken off the official rate since September, as the RBA has consecutively moved to cut rates. The RBA is reacting to inflation fears and may be concerned about the impact of slower world economic growth.

Predictions
Many economists were predicting a cut of between 75 basis points to 125 basis points. The RBA may have decided a cut of 75 basis points would not be enough to boost the consumer into spending again. In September the RBA cut 25 basis points off the official rate, but when this did little to influence the economy positively, the rate was slashed by 100 basis points in October. November saw another cut, this time of 75 basis points.

Therefore, the December cut of 100 basis points was an aggressive move to boost the local economy. The central bank forecasts that economic activity is likely to weaken more than expected, as the global downturn hits Australia's once booming commodity exports.

Preventing Recession
Signs that the economy is slowing are emerging, with recent figures showing capital city house prices plunged two per cent in the September quarter. While not a disaster by any means, Australian mortgage broker AFG say its Mortgage Index indicates that the volume of loans arranged by AFG for first home buyers has increased by 120 per cent in three months.

Home Loan Rates
Calsl for Australian banks to pass on the full amount of yesterday's official rate cut are growing momentum. Only three lenders passed on rate cuts in full, with The Commonwealth Bank, National Australia Bank and non-bank lender Aussie Home Loans all lowering their standard variable home loan rates by one per cent. Other lenders have cut rates by 80 or 85 basis points only. Home loan interest rates had risen to an average of 9.65% in September, and many home owners were struggling with high repayments. Now, standard variable home loan rates are as low as 6.65 per cent with some lenders.


Economists are predicting more rate cuts in the new year, while others believe this may be as low as we will go. With the Reserve Bank taking a break in January, we will all have to wait until February to find out.
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