Rates could drop to 3 percent but jobs maybe axed

Economists are predicting that interest rates will be 3 percent by March as the Chinese economy slows dramatically and drags Australia closer to recession.

This is good news for mortgage holders as it would lower rates by a further 1.25 percent over the next three months and would further reduce the average monthly mortgage repayments by another $200. The downside of this is that there will be further job losses across the economy.

China's economy is slowing much faster than expected, which could have a serious negative impact on Australia, especially the mining sector.

The Reserve Bank Governor Glenn Stevens said that China's economic growth looked to have dropped below 8 percent, which for China most economists regard as being a recession. He further reiterated that the most disturbing factor in the recent months of the global financial turmoil had not been the strife on Wall Street but China's economic weakness.

Economists predict that the gloomy global outlook will force the RBA to slash official interest rates by 0.75 percent in February and a further 0.5 percent in March. In the past months, the Reserve Bank has cut rates by 3 percent to a six year low of 4.25 percent. So far, the major banks have passed on about 90 percent of the official rate cuts.

Since the RBA started cutting rates in September, households with a $300,000 mortgage have saved approximately $565 in monthly repayments.

The latest housing start figures were released earlier this week, which indicated their sharpest decline in eight years during the September quarter.

The Australian Bureau of statistics reported a 10.7 percent drop in new property developments.

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Published on December 12-th, 2008 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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