How low can interest rates go?

Nov 14, 2008 - Boris Chan

Just how far will the Federal Reserve Bank go in lowering interest rates to save the country from a long and painful recession?

One of Australia's biggest banks has predicted that the official interest rate could drop to 3.75 per cent. This would then reduce the average home loan by almost $300 per month.

The Government has promised to do everything in its power to create the environment necessary to support growth and jobs.

Official interest rates have dropped by 2 percentage points to 5.25 per cent in the past three months, but the general consensus is that the Reserve Bank will lower interest rates by another three quarter percent next month. This will probably be followed by another cut of half a percent in February and a further quarter percent reduction in March, to take the cash rate to 3.75 per cent.

If these interest rates materialise then it would further reduce another $287 off monthly repayments on a standard variable loan of $300,000.
While most major banks have not passed on the full benefits of the recent falls in official rates, a dramatic cut in Reserve Banks rate would see a significant drop in variable rates.

The four major banks currently charge about 7.73 percent, but with the predicted falls could bring the standard variable rate down to 6.5 per cent or even lower.

Related Topics:

Compare Products

Savings Accounts Australia

Are you getting the best value for your dollar? Here is the best Savings Accounts in Australia at the moment:

Looking for a Home Loan?

Get 30+ lenders compared and save!