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Published on November 30th, 2012

Experts say RBA will drop cash rate

More and more economic experts are predicting that official interest rates are likely to fall over the next few months.

The cash rate, set by the Reserve Bank of Australia (RBA), was left unchanged on Melbourne Cup Day at 3.25 per cent (November 6), which was the first time in six years the RBA had not moved it on race day.

The next time the RBA will meet is on December 4 and more and more experts are predicting a cut, with Mortgage Choice CEO Michael Russell telling the ABC that he believes there will be some downward movement.

He said: "I think that the RBA will respond to this slowing domestic economy and I think they'll react and they'll drop the cash rate another 25 points, just to provide some stimulus for individuals and businesses.

"We've now got more people feeling optimistic about their immediate future than pessimistic. So with the RBA to meet next week, should the RBA as expected reduce the cash rate by another 25 points, then we might see some positive momentum leading into Christmas and New Year with respect of consumer confidence."

Mr Russell is not the only industry expert predicting a cut, with the Organisation for Economic Co-operation and Development (OECD) forecasting that it could drop as low as 2.75 per cent – two cuts, spread out over December and January.

The Sydney Morning Herald reports that the OECD is basing its prediction on the determination of the federal government to bring the budget back to surplus, which will "dampen demand" and force the RBA to act.

Should the interest rates fall back to such levels, the banks may pass on the cut in full, bringing the standard variable mortgage rate to around the six per cent mark for real estate owners. That would mean mortgage holders would save $90 per repayment on a $300,000 debt.

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