Cheaper Interest Rates Likely

Published: September 22, 2008 - 12:33 PM

RBA may lower interest rates in October

By Amanda Edmonds

A further interest rate cut is possible in October, a result of the current economic crisis in world financial markets, according to News.com.au.

The turmoil in the US, following the collapse of investment bank Lehman Brothers, has sent stocks plummeting world wide.

The official minutes of the RBA’s September 2 meeting, released last week, showed however that the policy makers are hesitant to make the interest rate cut.

The minutes are two weeks old and the recent financial market developments had superseded them, said RBC Capital Markets senior economist Su-Lin.

At the meeting, the board cut interest rates for the first time since December 2001, by 25 basis points to 7 per cent making interest rates cheaper compared to the beginning of the year.

ANZ senior economist Katie Dean said the financial crisis made an October cheaper interest rate more likely than not.
But the RBA is still expected to take a cautious approach, with JPMorgan chief economist Stephen Walters stating the RBA “officials were in no rush to ease policy,” acknowledging the risk of easing monetary policy too early which may make interest rates too cheap and speed up inflation.

“It is that the global backdrop will prove the determining factor in deciding the quantum of this current easing cycle,'' Dean said. “Indeed, the bottom line is that whatever RBA officials were thinking two weeks ago probably needs to be reviewed extensively.''

The events of the past two weeks have shown how volatile the financial markets are, demonstrating the need for households to be prepared to control the family budget and their spending compared to a year ago when the Australian economy was still thriving on the back of the mining boom.

In uncertain times, families must ensure they take every necessary step towards making sure their living costs are as cheap as possible such as gas and electricity. Whether or not mortgage rates are not reduced next moth, the cost of gas & electricity and other essential living costs have risen compared to a year ago.

David Power of ShopAround.com.au said “We want to support Australian families in these uncertain economic times by helping them save money as easily as possible. We provide a free service that allows consumer to compare electricity and gas costs from our suppliers which can help shave hundreds of dollars off these bills. By following a few quick and easy steps, ShopAround.com.au can find great electricity and gas prices tailored to best suit your needs.”

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