Economists tip rate cut today

As the effects of the global downturn threaten to hit our economy hard interest rates are tipped to fall to record lows today.

Out of 16 economists surveyed thirteen expect the Reserve Bank to cut the official cash rate at the monthly board meeting today.

The Median forecast is for a 50 basis point rate cut. This will bring the cash interest rate to a record low of 2.75 per cent.

If passed on in full by lenders, a further 50 basis point cut will reduce another $77.96 a month off the cash rate under the record low monthly average rate of 2.89 per cent seen in January, 1960.

Many economists say that deteriorating conditions among Australia's key trading partners will weigh on the domestic economy while domestic business data is still strong. Optimistic analysts say that the run of rate cuts and $52 billion in Federal Government stimulus programs will support local demand.

Su Lin Ong RBC's Capital Market senior economist stated that a 50 basis point rate cut would be a close call, with the Reserve Bank near the end of its easing cycle. "It's pretty clear they are reluctant to cut any more but the reason we think a move is justified is the global downturn has worsened since the last board meeting."

George Tharenou UBS's senior economist said that the prospect of a technical recession measured by two consecutive quarters of negative economic growth in the first half of this year justified the need for a 50 basis point cut today.

Riki Polygenis ANZ's economist said that the economy was yet to feel the full effects of the large Reserve rate cut since September. That strengthened the case for a 25 basis point rate cut to day.

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Published on March 3-rd, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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