Interest rates may reach 8-year low

by Rachel Seymour of Inside Finance 16/10/2008

Interest rates could drop to to the lowest level for over eight years, according to Macquarie Group interest rate strategist Rory Robertson. He is forcasting that the Reserve Bank of Australia (RBA) would cut the official cash rate from 6% to 4.25% over the next 12 months.

Due to the crisis in global financial markets, the Australian economy is under immense pressure and has been slowing towards a recession. If interest rates did drop to 4.25% it would be the lowest rate since the aftermath of the September 11 terrorist attacks in the US.
''As the financial conditions continue to deteriorate, the Reserve Bank is becoming increasingly worried about the outlook for growth,'' Mr Robertson said.

''So the Reserve Bank is cutting aggressively to limit the risk of recession in Australia.''


Suggestions that an unprecedented zero interest rate by 2010 could be on the cards, come from one Sydney academic who believes that debt-laden consumers will stop spending all together and threaten to push the economy into a deep economic contraction.

Economists are expecting the RBA will cut interest rates by 75 basis points in November and then again by three-quarter of a percentage point in December.

Such cuts would take the cash rate to 5.25% in November and 4.5% by Christmas, a level not seen since mid 2002.

When the RBA cut rates by 100 basis points earlier this month, it was the largest one-off cut since May 1992.