Australian interest rates to fall to 1960s levels

It is predicted that interest rates in Australia could fall to their lowest levels since the early 1960s by the start of 2009, with the start being a huge cut prior to Christmas.

It is hoped that commercial banks will pass on the interest rate reduction to their variable rates, although as seen in the UK some banks are not all that forthcoming.

If variable rates are cut, monthly mortgage repayments are expected to fall by up to 23 percent by mid 2009.

Kieran Davies, chief economist at ABN Amro, has said that the Australian economy is shrinking steadily and that assets are falling at recessionary rates and with business confidence similarly stuttering, the Reserve Bank of Australia (RBA) has little alternative but to cut rates quickly.

Corporate access to debt is still difficult, although it has improved from a year ago. However, lending to the real economy has suffered and with inflation falling to its current 5 percent, it is hoped that the RBA will have the leeway it needs to act.

With petrol prices falling under AUS$1 a litre, inflationary pressures are expected to recede further over the next year in a bid to avert recession.

Australian interest rates currently stand at 5.25 percent and could fall as low as 2.75 percent by next April, according to economists. Back in January 1960, interest rates were as low as 2.89 percent.

Story link: Australian interest rates to fall to 1960s levels