Reserve Bank of Australia to cut home loan interest by 1 per cent to boost spending
2008 November 22
by admin
The Reserve Bank of Australia, which was completed blindsided by the World financial crisis, has to reverse its decisions made in haste over the past few months.
Mortgage interest rates may drop by another 1 per cent next month to avert a recession from hitting Australia as the RBA has been caught sleep walking at the wheel of Australia’s economy, nearly driving it over a cliff earlier this year before they woke up to the fact that house values had been falling for a year before they acted.
A further major cut in interest rates to 4.25 per cent – the lowest point in seven years – would lower households’ monthly repayments by up to $200 on a standard variable loan of $300,000.
Australia has cut 2 per cent off the official interest rates, knocking $376 off the monthly repayments on an average standard variable mortgage.
While further cuts would be welcome the bad news is that household wealth has dropped by more than 8 per cent since the start of the year – wiping out about $32,000 of assets on an average family home, shares and savings.
Westpac chief economist Bill Evans said the RBA, in the minutes from its November meeting, gave a “clear signal that rates will be cut by 75-100 basis points in December” in a bid to offset the impact of the global recession.
This would provide a welcome relief for households as a December rate cut would come just days ahead of the Government’s $10.4 billion fiscal stimulus package. But it is just the next step in a cycle that could push rates to as low as 3.5 per cent by mid-next year, according to leading economists.
Despite another 110,000 expected job losses in the next 12 months, the Government hopes the twin approach of rate cuts and cash windfalls for hard-pressed families will keep the economy out of recession.
But even before the $10.4 billion has been given out, the Australian Chamber of Commerce and Industry is calling for a second economic stimulus package to help small business.
This is something that Mr Mortgage had predicted would happen 2 months ago when he said that the US package was never going to be close to teh mark of saving the US from recession and the same would apply to Australia’s tiny handout.
