Cash Rate Predictions
Interest rates as low as 2.75 per cent? That's what some economists are forecasting, but 3% is more likely.
It is widely tipped that the Reserve Bank of Australia (RBA) will reduce the cash rate by 50 basis points when it meets in February, bringing the rate down from the current 4.25% to 3.75% which would then be followed by a couple more snips of 25 basis points, allowing the official rate to reach 3% by June 2009.
The latest cut, of 1% in December 2008, took the cash rate down to a six-year low of 4.25 per cent, and nearly 300 basis points lower than where the rate stood in September. During the last quarter of 2008, consumer confidence was low, house prices were slipping and new home approvals were falling in rapid numbers. The RBA started off with small cut in September, but it soon became clear more cuts were needed to encourage spending.
In the later half of 2008, consumer confidence slipped to record lows due to high interest rates and looming job cuts, and the government handed out one off payments to eligible families and boosted the First Home Buyer Grant, in an attempt to halt Australia's slide towards a recession and prevent going into a budget deficit.
Mortgage Rates
With each official rate cut, most lenders have passed on the savings to home owners, and standard variable home loan rates have fallen from nearly 10% to below 7% in the past four months. However, Treasurer Wayne Swan has made it clear he is disappointed that not all lenders passed on the latest rate cut in full.
Your Mortgage
The RBA meets once a month and issues a statement the same day notifying any interest rate changes. There was no meeting in January so home owners have been waiting since December 2008 to see if their home loan will be reduced any further. The recent cuts accumulated to allow home owners with an average $250,000 standard variable mortgage to save $450 per month. Although, many home owners have continued to pay their mortgage at the higher amounts in order to pay more off their mortgage and reduce the length of the loan.
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