Fed: Home owners the big winners after rate cut, more to come

AAP General News (Australia)
12-02-2008
Fed: Home owners the big winners after rate cut, more to come

SYDNEY, Dec 2 AAP - Home owners can rejoice at the latest fall in mortgage interest
rates, after the central bank slashed official rates to a six-and-a-half-year low.

The decision by the Reserve Bank of Australia (RBA) to cut the cash rate by one per
cent to 4.25 per cent is expected to boost consumer and business confidence and underpin
Australia's economy.

And it's not over yet.

Financial market economists say official rates could fall to three per cent by March next year.

Retailers were especially upbeat with the industry's main lobby group saying the cut
on Tuesday to levels not seen since May 2002 would take the pressure off shopkeepers as
they head into the crucial Christmas trading period.

"The RBA's decision today to cut interest rates yet again indicates our leading financial
regulators are listening to retailers hard hit by months of reduced consumer demand,"

Australian Retailers Association executive director Richard Evans said.

Most of the big banks moved quickly to lower their standard variable mortgage rates
after the RBA.

The Commonwealth Bank was first off the pace, cutting its rates by 100 basis points
within minutes of the central bank's announcement.

National Australia Bank also matched the reduction, which will save customers $250
a month in interest on an average $300,000 home loan.

"Ending the year with home loan interest rates at levels not seen since 2003 is certainly
a great way to close out the year," NAB's Australian chief executive Ahmed Fahour said.

Westpac cut its standard rate by 80 basis points, while noting that wholesale lending
market rates remained volatile.

The RBA sent a clear signal to the banks on Tuesday that it expected commercial lending
rates to fall in line with its cut.

"Given trends in money market yields, most lending rates should fall significantly,"

governor Glenn Stevens said in a statement.

But Mr Stevens also noted that financial markets remain in a fragile state, amid fears
of a worsening global economic growth outlook.

The Australia stock market on Tuesday ended more than four per cent lower following
further evidence that the US was in recession.

But its performance was better than the US, where stocks fell by about eight per cent.

Australia is expected to escape recession, but Mr Stevens is likely to take no chances
with further rate cuts expected in 2009.

The RBA is presiding over the most aggressive rate cutting cycle in 25 years and if
rates fall to three per cent next year they will be at a 45-year low.

AAP klm/cdh

KEYWORD: RATES FRONTER

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